The Block in Davos: An interview with Circle’s Jeremy Allaire

Quick Take

  • The Block CEO Mike Dudas sat down with Circle CEO Jeremy Allaire during WEF’s annual meeting in Davos
  • They discussed the firm’s growth, its entrance into the stable coin market, and how it views the institutionalization of cryptocurrencies and digital assets

Last week, masters of the universe jetted off to Davos for the World Economic Forum’s annual meeting. The Block’s Larry Cermak and Mike Dudas were also in attendance. 

In addition to tracking down leads and spreading The Block’s Gospel, the duo had the opportunity to cohost a crypto event alongside E8 Partners. As part of the event, Dudas sat down with Circle CEO Jeremy Allaire to discuss the company’s growth over the past few years and how the firm is positioning itself going into 2019.

Circle, a Boston-based firm, wears many hats in the nascent crypto market. The firm, which was founded by Allaire and cofounder Sean Neville in 2013, got its start as a payments company — allowing users to send bitcoin around the world via a mobile application. Now, it operates a number of businesses including a massive cryptocurrency over-the-counter trading unit, Circle Trade. In 2018, Circle acquired Poloniex, a cryptocurrency exchange, and rolled-out a roboadviser-like product for crypto, Circle Invest. 

Following are portions of Dudas’ interview with Allaire, edited for clarity and brevity:

Mike Dudas: I want to start off by allowing you to introduce yourself and tell us a little bit about why you started Circle, walk us through the evolutions, the ups and downs of the business. 

Jeremy Allaire: Sure, I’m happy to. We started Circle almost six years ago in the early part of 2013 and just by way of background, I’ve been working in internet platform software and online service platforms really since the early 90s. I have built a couple of other businesses that have nothing to do with finance, but I think the thread that runs through the work that’ve done has been I’ve always been very passionate about how we can open networks built from decentralized protocols to enable us to do things that were never possible before. So, things like allow anyone in the world be able to create a piece of software on a server and make it accessible to billions of people or enable anyone anywhere to instantly share information or communicate it globally. Those are some of the software and platform projects I worked on. 

In 2012, I got very, very passionate about cryptocurrency and I think for me — and a lot of other people at the time — it was really a focus on Bitcoin, but there was a clashing of thought around it that was extremely compelling and the basic premise was we were seeing the birth of a new structure layer to the internet. These new sets of decentralized protocols were gonna provide this missing layer, a missing layer focused on value exchange and for us value exchange was not just about moving value from point A to point B. It was actually the exchanging value involving economical arrangements and ultimately building an open decentralized platform for essentially the reconstruction of the financial system.

We got very excited about that and I think back in 2013, I think a lot of people got involved in this space. We’re really excited about ideas like issuing assets on top of the public blockchain there were projects working on that. And very excited as well about the programmability of money. This idea that if you could issue assets on these public blockchains and you could create contracts, smart contracts was the framework and description that was being discussed. You could really, again, reconstruct the way the finance works. You could do that in a great open interoperable way. So we founded Circle with the long-term goal of building a global financial company. An internet-based financial company where everything is built natively on crypto — everything from payments to lending to savings to investing to securities of capital markets. That whole picture and we’ve been marching towards that in a lot of different ways over the past five and a half years.

Dudas: 2018, and 2017, marked an inflection point for Circle, I think. Could you walk us through some of the moves you made in 2018 and how they’ve advanced the original vision you had for the company?

Allaire: Yeah, so actually to kind of dial back a little bit. There are a few key pieces that we felt even when we founded the company it would probably take three to five years for them to be possible. That in particular tokenization or the ability to issue tokens and smart contracts.

But in mid-2017 we had a couple of projects. One was we were working on a next-generation fiat payment system built entirely on stable coins. I’ll come back to that because we launched it 2018.

And we were also looking at what was happening with what we saw as the crypto capital markets, and it was very clear to us that in the coming years there would be these marketplaces that emerged and these would be like the capital markets, but they would converge a lot of different things. The trading of currencies, commodity-like assets and also real securities. And kind of crypto exchanges were the nascent version of that. Most of the trading was digital currencies. The most popular different currencies with the increasing amount of trading of ICO tokens and things like that. We got to know the Poloniex team which was, in 2017, very large. It was an enormous business, and we worked out an agreement to acquire them during the Fall of 2017. It took a long time to close. Just to put it into perspective. That was a business that grew insanely fast. It was a tiny team who really didn’t know what they were doing in terms of scaling and operations. 

When we took over the business in February there was a backlog of 200,00 customer support tickets. Most of those actually, it wasn’t just that they couldn’t respond ’cause they didn’t have enough staff. Most of those actually had to do with technical issues in the platform. So, it’s been an incredible rebuild. 

This was a platform that had been built by someone who was really passionate about all coins and taught himself programming. They built a site and a lot of people love the site and was really connected to the community through that. There were a lot of passionate people in there, but it really was suffering under scale. And also from regulatory challenges facing companies in the US.

We took over that platform in early 2018 and that was a major milestone but the ultimate strategy there for us is we’re building out a multi-asset market place that supports the issuing of visual assets. In particular tokenized assets. So primary issuing platform for technology projects as well as startups. Including equity oriented assets is where we intend to go. 

Dudas: That’s not live today, right?

Allaire: Not live today. We made a separate acquisition of a broker-dealer. The largest equity crowdfunded company in the US. We announced that late in the fall and the ultimate delivery of that is something that hopefully will happen in the future. And the other piece was to ultimately build actual utility value around these networks. We really believed you needed Fiat money, but in a tokenized form. And so, if you wanted to build open interoperable global payment systems, open interoperable lending contract, debt contracts, all these kinds of things. You needed to have a way to have a cryptocurrency version of a dollar, a euro or a pound, etcetera. So, we started work on something called CENTRE. And that launched also in the fall.

Dudas: And that’s different than what had existed previously? So, we would call that a stable coin, but actually a “fiat” coin that’s regulated and ties to a dollar but is a more regulated coin than say Tether, which is the largest global coin — not audited and not very transparent.

Allaire: Yeah. The bootstrap use case for stable coins, the most popular stable coin of course is Tether is in the crypto capital markets. It’s a liquidity mechanism, it’s an exchange arbitrage mechanism. It’s also used as a effectively a hedge historic value for people say who want to have dollars who might live somewhere where hey can’t get a dollar bank account or things like that. I think for us, we’re looking at this as more of what is the base layer that we need to build all these other financial products and services? And the base layer is actual central bank money. So, central bank dollars that are fully backed with the governance scheme and auditing schemes so that people actually understand what the asset is.

But critically is our belief is this can’t be from a permanent … just like this is the analogy a lot of people use is in the early days of the internet you had proprietary online services. AOL, MSN. There a lots of others in different markets around the world, and then you had HTTP. And Brian I know actually from the HTTP days. We operated a lot in that timeframe, but HHTP was an open standard that anyone could implement. And that is incredibly important because you had an open connected network and that allowed literally millions and millions and millions of people to consent and use that. So, for fiat money we did the same thing. It can’t be Circle coin, Coinbase coin, Bitfinex coins, Bank of America coin. It has to be a standard and so we set up CENTRE as an open standard organization. An open source technology project and the governance scheme so there could be multiple issuers in these stable coins.

Dudas: Everyone was waiting last year for a wave of institutional money and interest to enter the crypto market. It looks like that pool isn’t going to get bigger anytime soon. What things or what are the vectors on which a company like yours can differentiate yourself from competitors to get that type of business?

Allaire: Sure, I think the institutional side of this is very nascent but it’s real. So, in 2018 we grew to over a thousand institutional clients. Now, these aren’t the BlackRocks, these are hedge funds, crypto funds, market makers, high net worth individuals, family offices in the entire crypto ecosystem that needs liquidity. So, I’d say it is institutional — what I would call quasi-institutional. I think that’s great. I think we also on-boarded a lot of institutions that would be considered more classically institutional who are essentially I think chasing a little bit of the hype wave. Getting approvals. Maybe we get our own crypto assets. Beginning to set up trading relationships to do that, et cetera.

Now, what we’re doing obviously is we’re trying to provide several services for institutions. One is obviously our core trade business, which is a very large over-the-counter business. And that’s at the core. So the people who want to do a $1M dollar or $10M or $100M trades in crypto from those sources can do that with us very seamlessly. We added an institutional program to our exchange. Poloniex really didn’t have institutional accounts, institutional on-boarding, institutional account management. We’ve added all of that so that there is a full services experience for intuitions that want to trade a much broader array of digital assets than just say the 35 that Circle Trade handles.

And then US dollar coin is an institutional offering. Really fundamentally to say it’s used primarily as a way to move dollar value extremely fast and very cheaply across exchanges and counterparties. That’s a piece. And then we launched Circle Research.