Original Article Title: Circle IPO is the Antithesis of Crypto Ethos

Original Article Author: Jeff Dorman, Chief Investment Officer at Arca

Original Article Translation: Yuliya, PANews

Editor's Note: As the issuer of the USDC stablecoin, Circle's IPO was supposed to be a significant milestone for the crypto industry's move towards mainstream finance. However, the issuance process has sparked widespread controversy within the crypto community. Jeff Dorman, Chief Investment Officer at Arca, provides a firsthand critique in this article, highlighting Circle's preference for traditional financial institutions in the IPO allocation and its disregard for native crypto participants. He also explores why the core crypto industry principle of "alignment of incentives" has been frequently deviated from in the traditional IPO system. The following is the original article, translated by PANews.

Circle, the company behind the USDC stablecoin, completed its initial public offering (IPO) last week, pricing it at $31 per share (above the initial expected range of $24 to $26). The first-day closing price was $84, and by the end of the week, the share price had exceeded $107. It would not be an exaggeration to say that the investment bank severely mispriced this IPO. Similarly, it is no exaggeration to say that Wall Street's enthusiasm for crypto assets, especially stablecoins, is soaring.

Reasons to be Bullish on CRCL:

· This is currently the market's first and only publicly traded investment focused on stablecoin growth, an investment opportunity that investors have been waiting for seven years (Arca included).

· The stablecoin market is expected to grow to over $1 trillion in assets under management, making it a compelling investment story.

· USDC currently has $60 billion in assets under management, with a 91% annual growth rate.

Reasons to be Bearish on CRCL:

· This is a business model entirely dependent on interest rates, with all revenue derived from interest income;

· Circle relies on Coinbase as the issuing agent, with Coinbase taking about half of the interest income;

· Circle also relies on BlackRock, and BlackRock has partnerships with many banks that are attempting to enter the stablecoin market, competing with Circle and Tether;

· Over the past 3.5 years, the company has seen little revenue and profit growth (although EBITDA increased by 60% year-over-year);

· The current $107 stock price valuation is high, with the following valuation metrics:

· Approximately 30 times gross profit;

· Approximately 110 times earnings;

· Adjusted EBITDA of approximately 59 times. (Projected for Q1 2025)

About My Open Letter to Circle CEO Jeremy Allaire

Many of you may have seen my tweet and subsequent news coverage regarding the open letter I wrote to Circle CEO Jeremy Allaire. The language in the tweet was somewhat strong, and I have since deleted it as it did not reflect Arca's official stance. However, I want to make it clear that I still stand by the core points I expressed.

In my view, Circle's decision to allocate shares to traditional financial institutions (TradFi) rather than crypto-native funds during the IPO allocation process was a significant mistake. They should be held accountable for the implicit message behind this decision.

We have engaged with several crypto funds and companies, including many early users and promoters of USDC (including Arca itself), some of whom have even closer ties to this IPO's underwriters JPM and Citigroup than Arca. We have received explicit feedback from these industry-leading institutions—either receiving a minimal allocation or no allocation at all—further confirming Circle's bias towards traditional Wall Street financial institutions while neglecting crypto-native supporters.

To this day, I have not found a single crypto-native institution that received fair treatment in this IPO allocation. This situation is utterly preposterous and demonstrates Circle's extremely short-sighted behavior.

Why Am I Angry? It's About Principle, Not Emotion

Those who know me or have worked with Arca in investments know that I am not an emotional investor. On the contrary, whether in bull or bear markets, I always maintain a rational focus on investment logic rather than personal emotions. However, when it comes to "correctly" driving the development of the crypto industry and upholding principles of integrity, I am deeply passionate and emotionally invested.

Since our founding in 2018, Arca has been at the forefront of the crypto industry, advocating and fighting for this industry. We have spent a significant amount of time initiating and winning campaigns against some poorly managed crypto companies that harm investor or client interests. Many believed token holders had no rights—we overturned this misconception, risking our reputation in the process, but we believed it was worth it.

We have always been committed to exposing what we believe to be industry fraud and misconduct, even if it means having some very uncomfortable conversations with friends or partners. It is worth it. We have also repeatedly criticized the traditional financial sector for its misunderstanding of the crypto industry and misclassification—such as lumping all tokens together and ignoring their significant differences.

We have also pointed out that some companies in the industry have intentionally distorted the narrative for their own gain, harming their peers who have developed alongside them. Additionally, we have always been open about our own mistakes and committed to continuing to do so. We spare no effort in globally educating about the pros and cons of crypto technology, aiming to enable investors and users to make informed decisions based on facts rather than being misled by the media or other untrustworthy entities.

Ultimately, we support all forms of development in the crypto industry. Whether misunderstood or not, we always believe that we have a responsibility to use our voice to expose fraud, identify bad actors, and point out poor decisions—aimed at making the entire industry stronger and healthier in the long run. And this time, we want to issue a "citizen's arrest warrant" against Jeremy Allaire and Circle—your actions have strayed from the essence of crypto.

I Am Not an Idealist, I Just Believe in "Customer First"

I am not a naive idealist. I truly believe that when you make your customers wealthy, your company will naturally succeed as well. Look at Binance, Hyperliquid, and even projects like Axie Infinity, which, even in times of adversity, maintain high levels of satisfaction among their founders, employees, customers, and investors. Why? One word: "Alignment."

This is not a new concept. Back in 2018, when Arca didn't even have a website yet, I wrote about the lack of alignment in the stock market. In 2020, I criticized Airbnb and DoorDash for not allowing their customers to share in the financial rewards of their IPOs. I also wrote about Coinbase's attempt to go public through a direct listing, a move worthy of respect, even though there are risks involved—such as lack of bank support to educate investors.

For the past eight years, I have emphasized that tokens are the greatest capital formation and user growth mechanism in history because they can immediately align all stakeholders, turning customers into power users and brand evangelists. However, in this IPO, Circle completely and intentionally disregarded its customers.

Arca's Long-standing Partnership with Circle—Why Was This IPO Allocation a Slap in the Face?

I cannot speak for all other funds (although many institutions have already stood with Arca, expressing anger over this IPO allocation), but I can definitively speak for Arca.

For nearly a decade, Arca has been a customer and partner of Circle. Before USDC gained market acceptance and had almost zero assets under management, we used our platform to support and promote USDC. We have advocated for USDC and the entire stablecoin space, standing up to institutions that dismissed the entire industry as a "joke."

Our trading and operations teams have worked closely with the Circle team, standing by their side in product testing, optimization suggestions, and major crises (such as the March 2023 banking crisis and the USDC unpegging event), providing tangible assistance.

However, in this IPO, we only received a very low allocation. This outcome is nothing short of a slap in the face. Cryptocurrency companies like Arca have weathered storms and struggled to survive over the past eight years. Many individuals and companies in this industry support each other and move forward together. When you have the opportunity through an IPO to benefit clients, thereby increasing their returns and asset under management—which will ultimately benefit the industry as a whole—this should have been the obvious right choice.

Why not reward the funds that have been deeply involved and continuously invested in the cryptocurrency industry? If these funds receive good returns, they can raise more funds and reinvest in the cryptocurrency ecosystem again. Isn't this a positive cycle for the industry? But Circle has chosen to do the exact opposite.

Their actions are completely contrary to the spirit of cryptocurrency

Circle did not express gratitude to users or achieve long-term mutual benefit through token issuance or creating some kind of interest-binding mechanism this time. Instead, they generously allocated IPO shares to traditional financial mutual funds and hedge funds. These institutions most likely haven't even read the prospectus, don't have digital wallets, and will not genuinely use Circle's products. They just want to make a quick profit.

To those who are angry with me, I also want to respond:

"You Arca are like those crypto users who want to freeload on airdrops, thinking that using the product entitles them to benefits!"

Response: This statement is half true and half false. Indeed, we agree with the idea that "customers should be rewarded." Any customer, regardless of size, that has a direct impact on business growth should somehow be rewarded.

DoorDash delivery drivers and customers were supposed to receive DASH stock; Airbnb hosts and guests were supposed to receive ABNB stock; Amazon Prime members and sellers were also supposed to receive AMZN stock... The list of such examples is endless. However, one key difference between an IPO and an airdrop is: we are willing to buy stock at the same price as everyone else. Whereas an airdrop is usually a free giveaway. More importantly, the distribution of an airdrop is often based on an algorithmic formula, transparent and automated; whereas IPO allocation is a manual process, where Circle can fully control who gets how much.

"You should blame Citigroup and JPMorgan Chase, not Circle!"

Answer: This statement is completely incorrect. I used to work as a capital markets investment banker and trader, interacting with the syndicate desk for almost ten years, fully understanding how the entire process works. Indeed, an investment bank is responsible for creating market demand, pricing, and collecting initial interest from institutional investors. But the ultimate decision on the allocation list and ratio is made by the issuer (which is Circle).

Circle is the client in this transaction; they pay hefty fees to Citigroup, JPMorgan, and other lead underwriters, and have full and final decision-making power. They have the right to see all orders and can directly control who receives how many shares. No matter how good your relationship is with the underwriters, it is not as important as your direct relationship with the issuer's executives.

By the way, Arca trades stocks, bonds, preferred shares, and other traditional assets on a scale that may be larger than most other crypto funds. We even stepped in to help when Galaxy (GLXY) faced difficulties in issuing convertible bonds in 2022, tripling the subscription amount, assisting them in fundraising (Citigroup was the lead underwriter, and they were very complimentary of Arca at the time).

However, even with that, large investment banks will still not prioritize small crypto funds in the allocation process. Therefore, the responsibility for this allocation lies with Circle, not the underwriters. Circle chose to ignore the needs of crypto funds, either out of negligence, incompetence, or most likely, intentionally.

"This IPO was oversubscribed 25 times - everyone's allocation ratio was compressed!"

Answer: This statement is not entirely accurate. Let's not forget, this is Circle's second attempt at an IPO. (The first time, they failed and were ultimately forced to withdraw.) This IPO did not start smoothly back in April of this year for various reasons - the macro market was soft due to trade tariff tensions,

Circle itself lacks profitability, and its reliance on interest rates and partners has also raised many questions. This transaction was initially challenging, until it suddenly became extremely hot towards the end of pricing. Why? Because the market began to realize that there was a high probability of this stock rising after listing, so many investors frantically submitted large orders at the last minute.

The IPO order mechanism is a game of "cat and mouse." Many investors, in order to receive a larger allocation, intentionally place an order much higher than they actually want, gambling on receiving a satisfactory proportion in the end. Early buyers like Arca, who placed genuine purchase requests before the entire order book was established, should have received their rightful allocation according to demand. However, we were completely marginalized in this maneuver.

The so-called "25x Oversubscribed" headline is likely just a "cosmetic dance" in the final data and may not reflect actual fairness.

"Stop complaining—this is just sour grapes!"

Q: That’s right, that is the whole point of this article. Whether Circle's IPO allocation behavior will impact its future and the adoption of USDC remains to be seen. However, we are very much looking forward to the upcoming 13F filing (institutional ownership report disclosed by the U.S. SEC), to see which investors Circle has selected to share their growth dividend.

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