The issuer of the USD Coin (USDC), Circle, holds equity investments in FTX Group amounting to about $10.6 million. The firm disclosed this in a filing with the SEC.
On November 11, the parent company of FTX, Alameda Research, and about 130 affiliated entities filed for bankruptcy.
“The company recognises the impairment of its investments in the reporting period. We have suspended services and transactions with the FTX Group and are currently assessing the indirect financial impact of a potential bankruptcy,” Circle said in the updated S4 filing.
On November 9, amid a liquidity crunch at FTX, Circle CEO Jeremy Allaire posted a thread to quell concerns about the turbulence’s impact on the company’s business.
He said that the entities of Sam Bankman-Fried had been receiving services such as the ability to issue/redeem USDC or access to an API on the same terms as other clients for about a year and a half. He added that Circle had never lent to FTX or Alameda, nor traded the FTT token.
Allaire described Circle as a “tiny” equity holder in FTX, and the stake that FTX has in Circle was described in the same way.
5/ Circle is a tiny equity holder of FTX, and FTX is a tiny equity holder of Circle. Circle is also a tiny equity holder of Kraken, Coinbase and BinanceUS.
— Jeremy Allaire (@jerallaire) November 9, 2022
A Circle spokesperson explained in Decrypt that the company does not disclose information about investments unless they involve substantial sums.
For this reason, Allaire did not disclose the size of Circle’s investment in FTX. However, as Circle is pursuing a public listing via a deal with a SPAC Concord Acquisition Corp, the amount was disclosed in the SEC filing, he noted.
Circle announced a merger with Concord in July 2021. At that time, the combined company was valued at $4.5 billion, but by February 2022, under the new deal terms, the projected value rose to $9 billion.
The parties proposed to complete the reverse merger by year-end. However, Concord moved the deadline to no later than January 31, 2023. To approve the arrangement, the company will hold a special shareholders’ meeting instead of its annual meeting.
In its regulator filings Circle acknowledged that it would not be able to meet the projected metrics under the previous agreement. The company cited the following reasons:
- The decline in the value of major cryptocurrencies in 2022;
- The collapse of major industry players such as FTX, Voyager Digital and Celsius Network;
- Rising US interest rates, which prompted outflows from USDC.
The company also noted Binance’s decision to automatically convert USDC to BUSD on its platform. However, assessing the impact of these operations on the financial results proved difficult.
Allaire previously compared FTX’s insolvency to the collapse of the investment bank Lehman Brothers, which sparked the 2008 financial crisis.
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