Amid Crypto Crash, Bostons Jeremy Allaire May Be Last Person Standing

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Unlike Bankman-Frieds’ t-shirt, shorts and bedhead routine, there’s nothing sloppy about Allaire, who dresses neatly and keeps her hair cut tight for a sleek pasty, to the Jean-Luc Picard. And he tends to speak in full paragraphs, sounding more like a crypto professor than a typical crypto brother.

If we want people to participate in this technology and these markets in the United States, we need to have clear regulations, Allaire said in an interview. People won’t trust an opaque offshore hydra company, or whatever you want to call it. They won’t want to trust that, because they’ll be afraid there are no rules.

Despite all that has crumbled in crypto, Circle just had its best quarter ever, with revenue 10x higher than last year and a profit of $43 million, the company said in A press release. The outstanding market value of most digital currencies has plunged, but the total value of Circles US Dollar Coin, or USDC, is stable at $45 billion, slightly higher than a year ago.

The biggest crypto firm in the region still has a long way to go. But for now, frame it as a victory for Boston’s old-fashioned fiscal conservatism, the prudential mindset that created Fidelity Investments’ first banks, mutual funds and titanic money market funds. .

Instead of creating another volatile digital currency that trades freely, Circles USDC is backed dollar-for-dollar by assets held in reserve, a setup known as a stablecoin, where the price is supposed to remain fixed. Users pay $1 to create $1 of USDC, and Circle primarily earns money by earning interest on reserves. (Upside Circles with USDC are limited, though even crazy tweets from Elon Musks can’t send the sky-high price.) Unlike other stablecoins, Circle releases a monthly audited report of what’s going on. sits in the reserve account and only invests in stable and boring treasuries. and bank deposits.

Circle has played it to the letter when it comes to crypto companies, said Omid Malekan, assistant professor at Columbia Business School, who follows the industry and believes stablecoins are a flagship application of blockchain technology, a breakthrough that will become even more common and useful. Circle is well positioned to do well as crypto becomes more regulated and institutionalized, he said.

While Bankman-Fried and other crypto players were based overseas to avoid regulation, Circle stayed in the US and partnered with Bank of New York Mellon, the largest silver custodian. in the world, to hold its reserve assets, and hired BlackRock, the biggest money. manager, to manage the portfolio.

Circle has partnered with Bank of New York Mellon, the world’s largest silver custodian, to hold its reserve assets. Mark Kauzlarich/Bloomberg

Even at the height of the market boom, when Allaire tried to merge with a blank check company and go public, as many tech companies did, he chose one led by banking legend Bob Diamond, the former CEO of Barclays. (Circle canceled the deal this month due to market conditions.)

Circle is the industry’s white hat, said David Orfao, a venture capitalist at General Catalyst who has backed Allaire in several ventures. The one thing Jeremy always focused on was: how do we become regulated to be accepted into the financial system?

On a walk along the Charles River with a reporter this fall, Allaire explained how his more than three decades of internet experience and two previous startups had equipped him to weather the crypto mega-merger. .

Born in Philadelphia to social worker parents, Allaire moved to Winona, Minnesota in his youth. Along with his older brother JJ, he was obsessed with early personal computers, hand-typing video game programs from the code on the back of Byte magazine.

He went to Macalester College in St. Paul, Minnesota, where he majored in political science and philosophy, nurturing a lifelong interest in the structure of political and economic systems. In college, he connected with people from the former Soviet Union on the internet to learn about the fall of communism. Later, he helped MIT professor Noam Chomsky publish his political work on the web.

Simeon Simeonov, who met Allaire in Macalester, said his friend was always deeply curious. Simeonov’s work-study job was in a student computer lab where Allaire spent a lot of time.

His vision for the future is pretty specific, but it’s not unique, said Simeonov, who worked for Allaire in the past and is now chief technology officer at Real Chemistry, the AI ​​startup. His super power is that he can explain it and get high caliber people on his side.

Allaires’ first startup, Allaire Corp., developed software in the 1990s so websites could go beyond publishing articles and include apps and services. Venture capital firm Polaris, which was backing the startup, issued an ultimatum: Move the company from Minnesota to the West Coast. But Allaires’ most productive meetings have been with East Coast founders and investors. So the company moved to Boston and Allaire never left.

Allaire Corp. went public just before the dot.com bubble burst and was bought out on the cheap by Macromedia, which in turn was bought out by Adobe. As chief technology officer at Adobe, Allaire began to see the potential of online videos. This led to his second startup, Brightcove, which helped companies publish videos and advertisements on the internet. It suffered from the Great Recession but went public in 2012.

After the recession, Allaire fell down a rabbit hole researching the roots of the crash and the nature of money, which ultimately led him to bitcoin. In 2012, he started talking about crypto with Sean Neville, a software developer who had worked at Allaires’ first company and was mining bitcoin on his own computers.

Jeremy Allaire, CEO of Circle Internet Financial, sits along the banks of the Charles River in Boston. David L. Ryan/Globe Staff

Allaire recalled the moment when all of a sudden, like, a million dots connect. He and Neville came up with the idea for Circle, what they called a bitcoin bank. While buying the idea from VCs in Boston, they received a lot of backlash. It sounds completely [expletive] crazy and probably not a good idea, recalls Allaire.

But they convinced General Catalysts Orfao, who had been the chief executive of Allaire Corp. and invested in Brightcove, along with Jim Breyer, one of Facebook’s early backers.

Circles first product was called Circle Pay, much like PayPal or Venmo but for making transactions using bitcoin. But the app was plagued with fraud, a ubiquitous threat in the crypto universe. So, in 2017, Circle refocused on helping large funds and investors conduct crypto trades with a product called Circle Trade. It was a well-timed venture: Bitcoin was in one of its periodic booms, with the price of a single jumping from $1,000 to nearly $20,000 that year.

The success of Circle Trade led to Allaires’ biggest mistake in trying to expand into brokerage transactions for mainstream investors. Circle paid $400 million in February 2018 to acquire a retail brokerage firm called Poloniex. Tons of business activity poured in from China, some possibly violating sanctions against North Korea, Syria and other rogue states.

Today, Allaire describes the brokerage foray as dumpster fire after dumpster fire, but at the time it seemed like the best deal ever. As the price of bitcoin crashed and regulatory investigations piled up, Circle exited the brokerage unit with a loss of $157 million in 2019. Last year, an SEC settlement cost $10 million to the company and settlement negotiations with the Treasury Department’s enforcement unit called the Office of Foreign Assets Control are underway.

Instead, Allaire turned to stablecoins and created USDC. Comparing the boot experience to mountaineering, Allaire said he learned the lesson. It can be treacherous. There are near death experiences and you literally have to rotate.

These pivots took their toll on Circles’ workforce, which jumped to 400 during the Poloniex period, then dipped to 60 in early 2020. USDC has since taken off, growing from $400 million in value at $4 billion in 2020 and reaching $40 billion. by the end of 2021. Today, the company employs more than 900 people, including more than 80 in Boston.

Eventually, USDC could be used for many other types of financial transactions. Yet his continued success is by no means assured. After the FTX debacle, lawmakers could impose regulations so strict that Circle can’t make money or grow. And the Federal Reserve has talked about asking the US government to issue its own federal stablecoin. (Or, absent new rules, Circle could potentially make risky investments with the USDC reserve fund, putting the company’s sober and reliable brand at risk.)

The FTX mess only increases the urgency for Congress to pass new stablecoin rules, said Stanford Commerce Professor Darrell Duffie. The USDC has done well, but even better stablecoins can be designed.

The common thread of the Allaires companies is the application of software to new markets. Allaire Corp. allows websites to go beyond content hosting. Brightcove has made online videos more dynamic. And Circle is ultimately looking to reinvent the way money changes hands.

We haven’t yet reached 1.0 of what we decided to work on, Allaire said. It’s just a drop in the bucket.

Aaron Pressman can be contacted at [email protected]. Follow him on Twitter @ampressman.

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