Circle: A Milder Theory

  1. Much of the USD-to-USDC tokenization is economically meaningless
  2. The Yield product is a small circular financing scheme at arbitrary rates
  3. Pumping the SPAC IPO value is the only real profitable use case

Meaningless Tokenization

Dollars in bank accounts are already held electronically. Most banks have some physical cash on hand — but the bulk of the funds have no physical form. In this Odd Lots interview the CEO of Silvergate Bank touts their “automated tokenization of bank deposits” functionality. This is simply bragging your database can synchronize records with another type of database. That is something — it is not nothing — but this is hardly groundbreaking technology.

Circular Yield

The Yield product, for a time, offered returns far in excess of normal USD money-market funds. As Taibbi points out this is no longer the case. He also quotes a claim the program is on the order of a few hundred million dollars. If they have 50 billion in USDC outstanding and 300 million in Yield they can easily subsidize 5% or more return on the Yield product out of even a fraction of a percent on the main reserves. Or they could simply use investor money to subsidize the Yield product. They might even lend to another party and top-up the interest themselves. All manner of odd things could create this yield.

Pump It

Now you have to ask yourself: why would someone do this? Why does this make any sense? If you do these two things you can make two claims. First, you can claim a lot of traditional financial institutions are using your product and their executives will rave about it in the media. And second, you can point to your high deposit rates as evidence your “innovative financial products” are more efficient than dusty old TradFi. This might border on misrepresentation for a public company, or a company about to IPO, or really any entity with publicly traded securities.


We should emphasize that this is just speculation and may be completely incorrect. It is also most certainly not an allegation of any real wrongdoing! This is completely fine under the current rules. Even the SEC has publicly pointed out that the disclosure requirements for SPACs are far milder than traditional IPOs. We do have access to some financial statements for Circle and it is pretty clear their expenses exceed stablecoin reserve interest revenues by a lot:



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