Key Insights
- Circle loses about $3 billion due to Binance’s auto-conversion of USDC to BUSD
- It said it miscalculated its financial projection in the 2022 S-4 registration statement
- Circle said it had suspended its transactions and services for the FTX group
This week, Circle revealed some miscalculations in its financial projections and the likely impact of such miscalculations.
Similarly, Circle, the issuer of the USDC coin, attributes the miscalculations and errors to some events in recent times. These events include the FTX bankruptcy/collapse and Binance’s decision to convert stablecoin.
You would recall that most exchanges and wallets have been calculating their loss regarding the FTX crash. In the same vein, investors and holders are panicking about the remedy for the sudden collapse.
Circle Loses 3 Billion To Miscalculations
In September, Binance, a cryptocurrency exchange and rival to Circle, announced the decision to auto-convert USDC to BUSD. That is, Binance wants to start auto-converting Circle’s USDC to its stablecoins, BUSD.
The problem is that Circle didn’t consider the impact of Binance conversion on its USDC while making the projections. Alas, the conversion from USDC to BUSD saw a huge decline in USDC circulation— while BUSD saw an increase of about $3 billion between August 17 and September 30.
In a statement by Binance, they estimate an $8.3 billion decline in USDC in circulation. Of this $8.3 billion, $3.0 billion was driven by Binance’s auto conversion. This figure shows the USDC circulation between June 30 to September 30, 2022.
Similarly, Circle noted that there were miscalculated projections in its 2022 S-4 registration statement. It filed the amended registration statement to the US Securities and Exchange Commission(SEC) on the the14th of November.
You would recall that Circle submitted its first S-4 filing to the Securities and Exchange Commission (SEC) in August 2021. The filing contained the details of a merge between Circle and Concord Acquisition, a capital markets firm.
Furthermore, in view of FTX collapse, industry players attribute the loss of $3 billion to their collaboration in the past. John Belitsky tweeted that $3 billion has moved off exchanges since the FTX collapse— and it has informed its clients/ partners via mail.
You would recall that Circle conducted payment processing services for FTX. In that period, It issued USDC to FTX exchange and provided FTX’s payment API for about 18 months.
Jeremy Allaire, the Co-founder and CEO of Circle, identified the financial impact of FTX on its balance sheet. He said the impact wouldn’t be any longer than a $10.6 million equity investment. He added that Circle would officially address the issue in the next reporting period.
Conclusion
Circle said it miscalculated its projections in the 2022 S-4 registration statement. It said it underestimated the impact of Binance autoconversion. However, the miscalculation became glaring when USDC fell short of about $3 billion in circulation.
Furthermore, experts attribute some of the loss recorded to the FTX collapse. Circle has since then released a statement — it has suspended its transactions and services with the FTX group.
