Circle Leans on $1 Billion Cash Reserve amid Supply Crunch and Fierce Competition

2023-08-22, 12:57

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## TL; DR

USDC’s market share and capitalization have been decreasing since the beginning of 2023.

PYUSD is likely to give USDC the greatest competition once it reaches the market.

Circle’s CEO has promised to revive USDC potential through partnerships and market growth.

## Introduction

Firms that face stiff competition should create enabling strategies to maintain viability and to expand their operations. There is no doubt that the crypto sector is rife with competition due to lack of regulations. In this article, we explore measures which Circle, an American stablecoin issuer, is adopting to deal with the increase in competition in the sector.

Circle Sets Aside $1 Billion to Deal with Market Threats
The stablecoin issuer, Circle, has set aside $1 billion cash reserve to deal with any possible market threats amid its declining circulating supply. Circle, known for its stablecoin USDC, is facing increasing competition from crypto technology industry and traditional finance players.

PayPal, which recently launched its stablecoin PYUSD, has created much competition for Circle. We already know that Circle’s USDC, the second largest stablecoin by market capitalization, is competing with other strong stablecoins like <a href="/th/price/binance-usd-busd" target="_blank" class="blog_inner_link">Binance USD</a> (BUSD), <a href="/th/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USD (USDT), DAI, <a href="/th/price/trueusd-tusd" target="_blank" class="blog_inner_link">TrueUSD</a>, FRAX and <a href="/th/price/usdd-usdd" target="_blank" class="blog_inner_link">USDD</a>, among others. The following table lists the major stablecoins.

![](https://gimg2.gateimg.com/image/article/1692708971Circle 1.png)
Top 6 stablecoins - [CoinGecko](https://www.coingecko.com/en/categories/stablecoins "CoinGecko")

As the table indicates, USDC with a market capitalization of $25,991,517,319, is ranked second among the stablecoins. Nonetheless, Circle’s market has been shrinking for the past seven months.

Jeremy Allaire, Circle CEO, confirmed during an interview with Bloomberg that there is strong competition in the sector. He said, “I expect you will see many many, not just internet payments firms, but also all kinds of financial services companies and others begin to get more involved in this. It’s great to have this new competition. I do think it’s going to drive more and more companies into the field.”

Basically, Circle Fintech company will use the $1 billion cash reserve to hedge against negative developments in the sector. Currently, the company focuses on expanding its revenue stream as well as promoting greater adoption of USDC. It  generates much of its revenue from the interests earned from the investment assets that back USDC, including short-term Treasuries and dollar deposits.

According to Allaire, many other firms will introduce their stablecoins following the example of PayPal which is likely to increase competition and decrease Circle market share. However, he also noted that many stablecoins will collapse in the future after various regulators introduce crypto regulations.

Read also: [What You Need to Know When Buying Bitcoin with PayPal](https://www.gate.io/de/hot_news/detail/88/what-you-need-to-know-when-buying-bitcoin-with-paypal "What You Need to Know When Buying Bitcoin with PayPal")

## USDC Market Decline

Although Circle registered profit during the first half of this year, mainly from interest earned, USDC’s market share has been declining over the past few months. For instance, its market share fell from $45 billion at the beginning of 2023 to $26 billion in July. There are several reasons that have contributed to the decrease in USDC market share.

It is important to note that the circulating supply of USDC has decreased by over 53% since June 2022 when it had a market capitalization of $56 billion. Sadly, its market share has also shrunk to 21%. This means there has been a decrease in the number of individuals and institutions that promote USDC payments.

According to Circle’s CEO, Allaire, the major contributing factor for the decline in USDC’s circulating supply was Binance’s pullback from the coin in favour of its own stablecoin, Binance USD (BUSD), currently ranked number 4 best stablecoin based on market capitalization.

Secondly, the USDC stablecoin was [affected by Silicon Valley Bank bankruptcy](https://www.gate.io/blog_detail/2303/svb-crash-caused-the-butterfly-effect-in-the-crypto-market-what-should-investors-do "affected by Silicon Valley Bank bankruptcy") during the first quarter of the year. In fact, Circle’s $3.3 billion USDC reserves was stuck in Silicon Valley Bank, one of the crypto-friendly banks, which the US regulators shut down resulting in the depegging of USDC.

After the United States banking crisis and the depegging of USDC its market capitalization has fallen by almost half. This is because many investors lost confidence in it due to its depegging. 
Also, the United States crackdown on crypto activities negatively affected USDC’s market performance.

## Circle’s CEO Still Bullish about USDC and other Stablecoins

According to Circle’s CEO, there is still much hope in stablecoins despite the increase in competition. At the moment, Circle aims to explore new income streams as well as to increase USDC’s global crypto adoption to stem its market share decline. To enhance its global expansion Circle is working on forging several partnerships as well as increasing transparency through timely market reports.

Similarly, the company aims to remain adaptable to the changing regulatory environment. That is why it is focusing on improving its standards to position itself favorably for global growth. Despite its negative financial performance within the last seven months, Circle benefitted [from the collapse of FTX](https://www.gate.io/blog_detail/1804/key-lessons-from-the-collapse-of-ftx-and-the-implosion-of-ftt "from the collapse of FTX") and <a href="/th/price/terra-luna" target="_blank" class="blog_inner_link">Terra</a> USD which enhanced the growth of its market share at that time.

## PayPal’s PYUSD Competes with Circle’s USDC

Previously, we said that the decline in USDC is due to an increase in competition, among other factors. Indeed, there has been an increase in the number of stablecoins on the market. Apart from [PayPal’s PYUSD](https://www.gate.io/blog_detail/3034/daily-news-paypal-launched-a-us-dollar-stablecoin-pyusd-monetary-authority-of-singapore-supports-innovation-in-web3-industry-btc-volatility-dropped-to-historical-lows "PayPal’s PYUSD"), <a href="/th/price/aave-aave" target="_blank" class="blog_inner_link">Aave</a>’s algorithmic GHO and Binance-supported First Digital USD (FDUSD) recently came on the market.

Nevertheless, Circle expects to get the stiffest competition from PYUSD. PayPal insists that its stablecoin will be fully backed by the United States dollar deposits. Also, people will be able to buy and sell it on its application.

Further to this, individuals will use PYUSD to make peer-to-peer payments. They can transfer the coin to and from other suitable digital wallets. More interestingly, PYUSD will support all currencies which PayPal has. This means that PYUSD users can convert the coin to any one of these national currencies.

Dan Schulman, the president and CEO of PayPal, mentioned the main reason for launching its own stablecoin. He said, “The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar.”

Paxos, a New York based firm which offers regulated blockchain infrastructure to various crypto projects, is the issuer of PYUSD which exists [on the Ethereum blockchain](https://www.gate.io/learn/articles/what-is-ethereum/42 "on the Ethereum blockchain"). Already, PayPal obtained its New York BitLicense in 2022, which entitles its customers to buy and sell cryptocurrencies.

PayPal’s decision to develop its own stablecoin is not surprising considering that its business operation includes the buying, selling and transfer of cryptocurrencies like <a href="/th/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>, ETH, [Litecoin](https://www.gate.io/price/litecoin-ltc "Litecoin") and [Bitcoin Cash](https://www.gate.io/price/bitcoin-cash-bch "Bitcoin Cash").

## Conclusion

Circle has set aside $1 billion reserve cash to hedge the USDC stablecoin against negative market developments. The main threat the USDC is facing is competition from other stablecoins which include [Tether USDT](https://www.gate.io/price/tether-usdt "Tether USDT"), [BUSD](https://www.gate.io/price/binance-usd-busd "BUSD"), PYUSD and [DAI](https://www.gate.io/price/dai-dai "DAI"). However, Circle is putting in place measures to deal with such competition.

Read also: [What Is Dai? All You Need to Know About DAI](https://www.gate.io/learn/articles/what-is-dai/178 "What Is Dai? All You Need to Know About DAI")

## FAQs about USDC

### Is Circle a crypto company?

Circle is a Fintech and crypto company that owns and manages the [USDC](https://www.gate.io/price/usd-coin-usdc "USDC") stablecoin. It also offers its blockchain infrastructure to crypto projects that aim to leverage public blockchains and stablecoins for online payments.

### Is Circle a stablecoin?

Circle is a fintech company that has a viable blockchain infrastructure which other crypto projects can use. It owns USDC, a stablecoin pegged against the United States dollar. Therefore, Circle is not a stablecoin.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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