In the not-so-distant future, VC-backed startup Circle Internet Financial Ltd., a closely held mobile-payments firm backed by Goldman Sachs Group Inc., has major plans to upend the existing digital currency exchange landscape.
The news comes following Circle’s buyout of Poloniex Inc., one of the larger digital-token exchanges, and the new service will formally be called Circle Poloniex for now. The startup currently has more than 200 employees and expects to hire 100 more to fulfill its vision of monetary pluralism.
The acquisition, which is reportedly worth $400 million according to Fortune’s Robert Hackett, is one of, if not the largest, acquisitions in the industry to date. This appears to be a natural move for the five-year-old company, which already facilitates crypto trades worth upwards of a couple hundred million USD via its market-making arm Circle Trade.
Circle president Sean Neville believes the new service will offer an entirely new kind of exchange, one that gives users access to a wide range of currencies and tokens. The company already hosts close to one hundred altcoins in addition to more popular ones like Bitcoin, Ether, and Litecoin.
In practical terms, this means that Circle’s users will have the ability to transact in Bitcoin once again (a service the company shut down in December 2016) and many other cryptos. And Poloniex’s users will get access to Circle’s well-oiled and licensed business machinery, which has been developed over a five-year period with about $140 million in venture capital funding (from Goldman, General Catalyst and IDG Capital Partners).
Poloniex is ranked as the 14th largest crypto exchange by data tracker CoinMarketCap.com, but the exchange’s fast-paced business has slowed somewhat in the past couple of months in the face of an onslaught of complaints about its service. This acquisition is a win-win for both companies and could give the flailing company an important second change.
What is Circle X?
Based in Boston, Massachusetts, Circle was founded back in 2013, and is essentially an app available for both iOS and Android that allows you to send and receive money around the world, completely free of charge. Circle was valued at $480 million in July 2016 (before the Bitcoin boom of 2017) and this deal likely makes Circle a unicorn (a unicorn is a private company worth more than a $1 billion). One more thing worth noting is that Circle counts investment bank Goldman Sachs as a strategic backer.
Circle plans to build out Poloniex and they plan to bring the exchange to new markets, add the number of coins on its platform, and enable fiat-to-crypto transactions.
At the core of this transformation is what Circle refers to as “Circle X,” an exchange that is not specialized. This means the exchange would not only host a vast array of tokens, but it could also be used to trade in traditional equities and new assets (as cryptos already do today).
Neville explained that their plan for Poloniex is to make it a full marketplace where tokens can represent all kinds of assets and all kinds of contractual agreements.
Though a highly ambitious goal, Circle X would put pressure on large digital wallets and exchanges such as Coinbase Inc. It would also aim to compete with other types of trading systems (ATS) like tZero and Templum, and even fiat currency markets.
Currently, you cannot transfer USD or other fiat currencies into Poloniex, and as part of this “evolution,” Circle X envisions integrating fiat currencies into Poloniex’s current product.
While Poloniex offers more than 100 cryptocurrencies for trading, exchange customers have had to move those funds to platforms like Circle’s to convert into fiat. But Circle plans to explore the fiat connectivity to the dollar, euro and pound that Circle already offers through its mobile app.
There are currently no plans to de-list any of Poloniex’s existing tokens. However, Circle plans to increase its token listings and they are currently building a “legal framework” that will accelerate the rate at which desirable tokens could be added to that platform.
As for Circle’s long-term vision for Poloniex, the company expects to create a diverse marketplace, hosting tokens representing everything of value: physical goods, fundraising and equity, service leases and time-based rentals, real estate, creative productions such as works of art, music and literature, credit, futures, and more.
And not only is Circle looking to add to Poloniex’s service, it also wants to take care of some of the problems the exchange was facing as well, including lengthy delays in verification, unresponsive customer service and balance display errors on accounts. Neville said Circle will make available several of its custom tools in an effort to confront the problems head-on, and he said the company will do this “while the train is running” and expects zero down time.
For example, an internally developed tool dubbed “Diameter,” which is currently used by Circle’s global support team in Europe and the U.S, was highlighted as a means to solve Poloniex’s problem handling the amount of customer service requests it receives.
Diameter is a natural match for what Poloniex needs, particularly in the short-term, because this tool connects directly to the backend processes of a platform and acts as a filter before human customer service agents get involved. Diameter automatically surfaces solutions based on specific issues, which allows the human teams to deal with more traffic.
However, in the long-term, perhaps a more crucial benefit of the acquisition relates to dealing with financial regulations, Specifically, Circle’s expertise should immediately improve Poloniex’s compliance.
In interview, though, Neville downplayed the problem a bit. He said that the team behind Poloniex has “done a good job adhering to the laws they need to adhere to in order to support their customers.”
Yet, Nathaniel Popper, a New York Times reporter covering the intersection of Silicon Valley and Wall Street, tweeted a link to an image that appears to indicate that the SEC agreed to stand down in pursuing enforcement actions against Poloniex if Circle registered the exchange as an alternative trading system.
Allaire did not confirm whether the information was accurate. However, to questions about the tweet, he said that they believed the technology developed by firms like Circle was complementary to this mission, and that they look forward to working closely with all their regulatory stakeholders, both domestic and abroad.