Circle (Financial Services Company)

What Is Circle?

Circle is a Boston-based financial services company that uses blockchain technology for its peer-to-peer payments and cryptocurrency-related products. It was started in 2013 by Jeremy Allaire, who previously founded Brightcove, a video platform company, and Sean Neville.

Circle started as a consumer peer-to-peer cryptocurrency payments and exchange platform, sponsoring the popular cryptocurrency exchange Poloniex after the exchange experienced hardship in 2017, which was later spun out in October 2019.

In 2016 the company stopped offering its cryptocurrency wallet services. In June 2019, it was announced that Circle Pay mobile and related web apps would be discontinued. In 2020, the company's focus shifted to its stablecoin as "programmable dollars" for business use. In 2021, Circle was acquired by Concord Acquisition Corp., a special purpose acquisition company (SPAC), in a deal valued at $4.5 billion. The deal will take the company public in late 2021 under the ticker symbol 'CRCL'.

How Circle Works

Circle's website states that its mission is to change the global economy. The company's first product was an app called Circle Pay. The app was a bitcoin trading exchange. In September 2015, Circle Pay was granted a BitLicense, New York state's license for operating bitcoin exchanges.

In May of 2021, the company announced it had raised $440 million in financing from institutional and strategic investors. In 2018, Circle had raised $110 million in venture capital to create a stablecoin on Ethereum coin backed by U.S. dollars, known as USD Coin (USDC).

The U.K.'s Financial Conduct Authority (FCA) granted Circle an electronic money license. In December 2016, Circle Pay's focus shifted to peer-to-peer payments or "global social payments." Circle also launched an open-source software project in 2017 to promote payment technology.

The Circle App

Circle’s main product was an app called Circle Pay that enabled instant and free money transfers between individuals. The service was similar to Paypal’s Venmo in that it could be used for daily transactions, such as splitting meal costs or making rent payments. 

The Circle Pay app was popular with Millennials in Europe. According to the company, 90% of its European customers in 2017 were below 35 years of age, and 60% were younger than 25 years old. In June 2017, Circle Pay announced the integration of a free money transfer service between the United States and Europe.

While announcing the launch, Circle founder Allaire said the company was working towards realizing its vision of no distinction between international and domestic money transfers.

Open-Source Blockchain Toolkit

Circle's open source project is called Centre and is named after the Cent Routing Exchange protocol it uses. Transfers within the app take place using Centre tokens (CENT), an Ethereum token. The project enables transfers between consumer digital wallets that support different currencies. It is also intended to help financial services companies to comply with existing regulations, such as Know Your Customer (KYC) and Anti-Money Laundering (AML), by enabling disclosure.

The project supports transfers in many countries around the world. For example, a user in the U.K. can convert British pounds to Korean won and transfer them to a digital wallet user in Korea using the app. Centre currently runs on Ethereum's blockchain but is designed to run on other blockchains as well.

How Does Circle Make Money? 

Circle's products are freely available in app stores, and the company does not charge fees for transactions or transfers. It makes money through the trading of bitcoin and other cryptocurrencies in over-the-counter (OTC) markets and at digital exchanges.

In an August 2017 tweet, Allaire said Circle was the second biggest crypto asset trader in the world. The company trades in bitcoin and ether and is a market maker on all major exchanges. It also provides OTC liquidity services to institutions. In the future, it may launch products that generate revenue.

"We will have future, higher-level products that we fully intend to be revenue-generating, but this first basic product needs to be free," co-founder Sean Neville stated in a 2014 blog post. 

Circle also earns revenue from the reserve balances that it holds for its customers. The company invests their clients' balances and pays them interest from those investments but takes a portion of the rate as revenue via an interest rate spread.

Circle’s Business Strategy

Circle processed $1 billion in transactions per month as of 2017, according to a statement from Allaire. It entered China, a massive market for payment apps, starting in 2016. The company’s focus in China is to “connect Chinese consumers to the rest of the world” by enabling the flow of payments going out or into China. For example, it could more easily facilitate money transfer operations for Chinese students studying abroad. 

Circle’s technology of using blockchain-based tokens is similar to that of Ripple, which is another company focused on reducing the cost of international money transfers. However, both apps target different markets. Ripple is working with banking institutions to implement its technology.