A SPAC and a crypto-company walk into the bar...​

By Jake Rickman​

What do you need to know this week?

The much-anticipated public offering of stablecoin company Circle — to have been structured through a special acquisition company (“SPAC”) managed by former Barclays chief banker Bob Diamond — has been called off.

The deal was expected to raise between $7.65bn – $9bn in exchange for issuing shares to the public.

Circle is a peer-to-peer cryptocurrency platform that offers users access to its proprietary USD Coin (USDC), which is the second most valuable stablecoin in the market.

The premise behind stablecoins is that they are cryptocurrencies tied to a fiat currency like USD, as in USDC’s case. Ideally, users obtain the benefit of using cryptocurrency (block-chaining, immediacy, anonymity) without the price volatility inherent to other cryptocurrencies like Bitcoin or ether. As Circle advertises on its website, “every digital dollar of USDC can always be exchanged for 1:1 cash”.

Circle, along with other stablecoin platforms, generates revenue by investing the fiat money (£ or $) crypto-traders use to buy stablecoin into traditional interest-bearing assets like bonds. Crypto-traders in turn use the stablecoins as a cash-equivalent to move between their various cryptocurrency positions.

According to a 2021 investor slidedeck (slide 18), Circle also disclosed that in addition to the interest earned on its reserves, it also generates revenue from transaction and usage fees as well as its “SeedInvest” platform, described as a “Two-sided marketplace for issuers and investors [that enables] internet private capital markets to grow and flourish.”

In a forecasted profit & loss (P&L) summary contained in the same deck (slide 37), Circle anticipated it would turn a profit in 2023. Evidently, Concord Acquisition — Mr Diamond’s SPAC — was not ultimately convinced.

Why is this important for your interviews?

This time last year, TCLA’s commercial articles spent a lot more time looking at M&A deals and IPOs as and when they closed. The fact that TCLA’s commercial articles have resorted to discussing deals that have gone nowhere feels like a sign of the times. Indeed, as the Financial Times notes, the proposal, when initially announced, was “forged during the crypto bull market in July 2021”, which is certainly no longer the case.

Not unrelated to this development is the fact that SPACs and crypto were a lot hotter in 2021 than in 2022. How things can change. One could certainly make the case that this story demonstrates that market fads can — and do — fade. Likewise, this story might also put into perspective the attitude some in the legal sector held towards cryptocurrencies in recent years past (and to a lesser extent, SPACs), which was one of seemingly boundless opportunity — a sense that one or the other (or both) might spur on revolutions in the legal and financial landscape.

But at the same time, it is easy to be a critic with the benefit of hindsight. Macroeconomic conditions now are very different than they were a year ago, let alone three or four. An interviewer could just as easily counter that the slowdown in the SPAC/crypto space are mere growing pains, perhaps not unlike high-yield bonds and the role they played during the savings & loans crisis in the 1980s.

Perhaps the best takeaway is to strive for a sober and critical perspective on such matters. Your interviewers will certainly find nuanced views impressive. Certainly, clients rely on commercial lawyers to navigate unfamiliar financial products as and when they emerge; to anticipate risks while not being overly dismissive of new ventures.