Allaire had just wrapped up a headline appearance at a finance conference in Abu Dhabi, and he planned to take the weekend off to celebrate his son’s birthday. They were set to ride camels and dine at the Burj Khalifa. But with USDC in free fall, Allaire would have to cancel.

The crisis, which had been set off by the U.S. regional banking crisis, posed an existential threat not only to USDC, but to Allaire’s own grand ambitions. For years, he has envisioned remaking the world’s financial rails into a faster and more efficient system powered by his dollar-backed token. And by early 2023, Allaire and his company were on the cusp of succeeding, as USDC’s market cap swelled to $40 billion, and U.S. lawmakers were close to bringing stablecoins closer to the center of global banking.

That was until Circle revealed that $3.3 billion of its reserves—the stockpile that helped USDC maintain its $1 peg—was stuck at the failing Silicon Valley Bank. Suddenly, Circle’s prize stablecoin was unstable. While it would soon regain its peg, the damage was done—leaving the crypto world to wonder what had gone so wrong as USDC lost market share to its renegade rival, Tether. Interviews with more than two dozen executives, competitors, regulators, and former employees reveal a shape-shifter company with the aspirations of a market leader but the track record of a perpetual runner-up. 

Darts at the wall

Before Jeremy Allaire became a king of crypto, he was a serial entrepreneur. Prior to the dotcom era, he worked with his brother to create a web development platform called ColdFusion, spinning it into their own public corporation with over 700 employees that was acquired by tech company Macromedia, where he served as CTO. He went on to work for venture capital giant General Catalyst, later founding a video platform called Brightcove that went public with a valuation of around $500 million in 2012.

Allaire still operates within the classic archetype of a tech founder. He’s more comfortable communicating in terms of philosophical pillars—the origins of capital, for example—than practical considerations. He’s mastered the trick, honed by years of hosting fancy dinners, of finishing a plate of food while speaking in full paragraphs.

By the time he created Circle in 2013, Allaire had developed a lofty view for reshaping society. Allaire said the founding vision of the company was to create a universal system of plumbing for money, just as the HTTP protocol served as the foundation for information to spread through the internet.

“If that could happen, that would be extraordinarily powerful,” Allaire told Fortune. “That was literally the founding vision of the company.”

From the beginning, Circle sought to highlight Allaire as a different sort of crypto founder—one who had the gravitas of a successful entrepreneur and didn’t come with the baggage of the hucksters and zealots endemic to crypto’s early days. This helped attract the backing of institutional players like Goldman Sachs, which co-led a $50 million funding round in 2015. Still, he could not find product market fit.

Circle arrived a year after Brian Armstrong founded Coinbase, and ever since, Allaire’s firm has always seemed to be playing catch-up to its rival in reaching the pinnacle of the U.S. crypto industry. As one former Circle employee put it, “Jeremy loves the business that Brian has built.”

Over the course of its first five years, Allaire’s new company launched Circle Pay, a kind of crypto alternative to Venmo, and operated an over-the-counter desk to facilitate crypto transactions for so-called whales. The desk, whose star trader would go on to become a senior figure in Sam Bankman-Fried’s doomed crypto empire, would bring in more than $60 million in a three-month period from 2017 to 2018—a time when the word “stablecoin” had yet to become part of Allaire’s discourse.  

Despite these flickers of success, Allaire was trapped in Coinbase’s shadow. Crypto still revolved around the simple business model of selling and buying digital assets for speculation, so he wanted the crown jewel of any burgeoning blockchain platform: an exchange. Poloniex, one of the most active at the time, was available for the hefty price tag of $400 million, and Allaire jumped at the opportunity. 

The decision likely would’ve sunk Circle if not for the miraculous rise of USDC. At the time of the sale, it was already clear Poloniex was a toxic asset—Allaire himself acknowledged the exchange’s history of sanctions violations in a confidential presentation, waving concerns away by promising to implement stricter compliance measures. Efforts to put in additional safeguards proved unsuccessful, however, and Circle would sell the exchange to a consortium of Asian investors, including crypto dilettante Justin Sun, amid a cloud of regulatory uncertainty just a year later for a loss of $156 million.

“Their strategy was, let’s throw all these darts and see what works,” said Austin Campbell, former chief risk officer of rival stablecoin firm Paxos.

The dart that stuck was USDC. According to Allaire, after Ethereum brought smart contracts to the crypto world in 2015, he realized the building blocks to programmable money were finally possible. Circle embarked on an open-source project, codenamed Spark, to develop a protocol for fiat-backed tokens on top of the Ethereum blockchain. “All these ideas that were basically ideas on napkins for a long time,” Allaire said.

Allaire presented his idea in May of 2018 alongside Circle cofounder Sean Neville at the crypto industry’s flagship Consensus conference. The pair talked up a vision of transforming different fiat currencies into digital tokens that could be used anywhere to settle payments almost instantly and at a fraction of the cost of traditional transfers. Circle’s plan was not only to deploy stablecoins as a way for crypto owners to park their funds in dollar-backed tokens, but to modernize the global financial system. 

The idea piqued the interest of investors, including Jihan Wu, the shadowy cofounder of Chinese Bitcoin mining firm Bitmain, which would lead to a $110 million funding round for Circle that month, pushing its valuation to $3 billion. Neville, who left Circle amid the Poloniex debacle, explained that the initiative would be governed by a separate entity, named Centre—a consortium of member firms that would work together to roll out a bevy of stablecoins, starting with the USD Coin that would soon become Circle’s entire business. 

By the end of 2019, Circle had gone all in on stablecoins—shuttering Circle Pay and selling off its OTC desk to Kraken, another crypto exchange. While Bitmain would never join Centre to share in what would become a literal license to print money, one other company would: Allaire’s longtime rival Coinbase. 

The Centre cannot hold

Circle had the idea, but Coinbase had the distribution. In 2018, the San Francisco–based firm was one of the largest crypto exchanges, although it hadn’t yet gained entrance into the clubby world of traditional finance. Circle, in contrast, was backed by Goldman Sachs, though it didn’t have the reach of Coinbase. The two were a match made in blockchain heaven.

The arrangement to partner on USDC also saw Circle and Coinbase serve as the cofounding members of the Centre Consortium, the new corporate entity tasked with operating the smart contracts that would launch the digital tokens. In theory, the consortium would attract big financial firms that would embrace USDC and help it gain traction well beyond the world of crypto, while also recruiting other partners that could issue their own fiat-backed tokens. Meanwhile, Circle would serve as the de facto issuer of USDC, thanks to a patchwork of regulatory licenses it had picked up for Circle Pay, while Coinbase would provide the early users.

When the partnership was created, the two companies never anticipated that USDC would become a significant entry on their balance sheets. The revenue-sharing agreement for USDC, which has often been incorrectly reported as a 50-50 split, was in fact devised as a convoluted formula that awarded proceeds—in the form of interest collected on stablecoin reserves—based on whichever company minted a given batch of tokens, as well as where they were subsequently held.

In the early days, divvying up the USDC proceeds was less of a priority than creating a viable product. 

“We weren’t trying to divide the pie better,” said one Circle employee involved in USDC’s development, who spoke on the condition of anonymity. “We were trying to make the pie bigger.”

Soon though, the crypto phenomenon of decentralized finance (“DeFi”) would take off and cause USDC to grow beyond both firms’ expectations. Meanwhile, the sudden return of rising interest rates would mean that the reserves backing the tokens would begin kicking off hundreds of millions of dollars in unexpected revenue. 

As the crypto market headed into a new bear market in late 2021, the USDC stablecoin was no longer an experiment—it was a treasure trove, and lifeline, for Circle and Coinbase. Last quarter, for instance, interest income from USDC accounted for nearly 30% of Coinbase’s revenue. For Circle, according to unaudited financial statements from the first half of 2023 viewed by Fortune, interest income constituted over 99% of revenue.

The muddled nature of the revenue split hadn’t mattered much when USDC’s market cap was under $500 million, but as it climbed north of $50 billion, Coinbase and Circle would come to bicker over how to share the proceeds from the reserves. “The incentives were not aligned to grow things,” said a person familiar with Coinbase. “It wasn’t working well.”

USDC’s newfound golden goose status also meant that one-time plans for Centre went out the window and, as DeFi emerged as a hot new moneymaker, Centre’s initial focus on global payments receded. And instead of signing on an ecosystem of partners who could each issue stablecoins backed by different fiat currencies, the consortium's only product remained USDC—with Circle the sole issuer—although Circle did later release a euro-backed stablecoin outside the purview of Centre. 

For a while, Centre did pursue its initial plans to attract big corporate names—Visa, Square, and even stablecoin firm Paxos all explored joining—but it soon became clear the priority for Coinbase and Circle was to expand USDC’s market share and profits for the two firms. Although the organization was initially set up as an LLC so that it could be converted into a nonprofit, it always functioned as a joint venture between Coinbase and Circle. A former Centre employee told Fortune they never viewed the organization as a consortium. 

“They used to talk about it like, ‘No, USDC will be a public utility,’” said a leader at another crypto company, who spoke on the condition of anonymity. “And then it clearly is a private enterprise.”

Centre’s staff, which numbered over 20, dwindled into the single digits until it was closed in August. Circle assumed all governance for USDC, while Coinbase gained an equity stake, with no cash changing hands, according to a person familiar with the deal. Meanwhile, the revenue share agreement was retooled to take minting out of the equation, coming closer to removing the incentives for one firm to undercut the other. The deal seemed to finally acknowledge that USDC belonged to Circle and Coinbase, not the crypto industry. 

Circle and Coinbase remain fixed in a strange relationship. Circle has outgrown the need for Coinbase’s name brand, and now Coinbase reaps the benefits of the original partnership agreement, bringing in as much as $240 million a quarter from interest income without having to handle the governance or issuing. Coinbase still contributes its sizable retail customer base—and its status as a cofounding Centre partner. Allaire, no doubt, still believes that Circle should occupy the top rung in the U.S. crypto hierarchy. As one competitor put it, “Jeremy Allaire likes the spotlight.”

While Allaire remains in the shadow of Brian Armstrong, he has succeeded in fashioning himself as the grown-up of the industry, often serving as crypto’s ambassador to politicians and bankers. He portrays USDC as the bridge between traditional finance and blockchain, and Circle as the company that can serve as a regulated North Star for the wildcat industry. The reality is more complicated. 

Move fast and break things

In mid-February, a month before Silicon Valley Bank’s collapse, the powerful New York Department of Financial Services sent a shock wave through the crypto industry. The agency’s superintendent, Adrienne Harris, announced a death blow to one of USDC’s main competitors, a dollar-backed stablecoin called BUSD backed by crypto giant Binance and Circle rival Paxos.

BUSD had been creeping up on USDC’s market share until Binance acknowledged it was issuing unsanctioned versions of the stablecoin while playing fast and loose with reserves, and seemingly without the knowledge of Paxos. The stateless Binance may operate in a gray area outside the watch of U.S. regulators, but New York-based Paxos does not. DFS ordered Paxos to stop issuing the token, effectively killing BUSD and nearly taking down Paxos with it. According to a person familiar with the company, over 95% of Paxos's revenue came from the partnership. 

The episode underscored how, while crypto diehards may embrace a vision of free markets unencumbered by governments, the future of stablecoins will be shaped by regulators. It’s an inevitability that Circle has embraced, and Allaire has long touted his company’s zeal for supervision as a critical distinction from chief rival, Tether, the murky offshore stablecoin leader.

Despite his professed commitment to regulation, however, Allaire’s background has often led him to operate Circle in the classic tech mode of “move fast and break things.” This trait would prove disastrous in light of the collapse of Silicon Valley Bank and the ensuing USDC depeg, but the warning signs were present before. On several occasions, Allaire’s response when regulation limits his vision of a payment revolution has been to cut corners—including in Circle’s dealings with New York’s DFS, which has become the U.S. crypto industry’s de facto crypto regulator.

While competitors like Paxos and the Winklevoss-run Gemini have chosen to issue their stablecoins under DFS supervision, Circle has elected to merely hold a license with the agency. It does not issue USDC under the agency’s oversight, according to Circle and former Centre employees, as well as three people familiar with DFS crypto supervision. 

The decision reflects the gulf between Circle’s claims of regulation and its operations. The company skirts the line, such as with its reserves, which now hew to guidance issued publicly by DFS in 2022 that calls for backing in safe assets like short-term U.S. Treasury bills, as well as two attestations per month. Circle previously held a portion of its reserves in riskier instruments called commercial paper—a practice it stopped after public pressure in 2021. Paxos, in contrast, has criticized the practice, arguing it does not offer the same type of "price stability."

Working outside the guardrails of the regulator may be necessary for USDC’s business model. By not seeking DFS approval on USDC issuance, Circle is free to operate across different blockchains—a crucial feature that has increased its distribution and popularity among traders and developers. Other DFS-regulated stablecoins are still restricted to Ethereum and its expensive transaction fees.

Circle’s aggressive decision to push into other blockchains also provides another revenue source. A developer from one leading blockchain, who spoke on the condition of anonymity, said that Circle quoted them $2 million to integrate USDC. A source familiar with Sui, another blockchain that has yet to introduce USDC, said that Circle asked for closer to $4 million.

The practice is inconsistent—a third blockchain executive said they’re in talks with Circle’s venture arm for an investment, which would come with USDC integration, and a fourth said that discussions were ongoing—but reflects how key blockchain expansion is to Circle’s core business. When asked, Allaire said that Circle wants partners to have “skin in the game.” A spokesperson denied that Circle would waive commercial agreements because a chain is a Circle Ventures portfolio company.

Issuing USDC under DFS would muddy Circle’s ability to operate across chains. Instead, Circle operates in a liminal zone with the country’s only established crypto regulator. “It’s weird,” a former DFS regulator said about the relationship between Circle and DFS. “It’s almost a metaphysical distinction.”

Breaking the buck

Allaire has shown a clear willingness to move faster than the speed of regulators—a hallmark approach for tech founders, but a dangerous game for the head of a financial institution with over $40 billion in assets under management.

“He’s either really just wrong, or he’s a liar,” said Steven Kelly, associate director of research at the Yale Program on Financial Stability.

Until March, Allaire portrayed USDC as less risky than banks. “Remember, a fully reserved stablecoin is not lending out the reserves like a bank lends out your deposits,” he told Yahoo Finance in November 2021. In a blog post from July 2022, titled “Why being a U.S. regulated company matters,” Circle reiterated that any comparison to banks that engage in fractional reserve models was “apples to oranges.”

“This was always bogus,” said Kelly.

Allaire envisions a system that would let Circle surpass banks altogether, and hold its reserves directly with the Federal Reserve. Lawmakers have not warmed up to the proposal. Instead, Circle has long held significant portions of its reserves with banks, exposing USDC to the same risks that Circle claimed to avoid. And in March, reality came crashing down.

The onset of the mini-banking crisis came as depositors withdrew their holdings from regional banks en masse. The banks, which invest deposits in low-risk assets, still had to sell their holdings for a loss as customers rushed to pull their holdings in a panic. Several big names, including Silicon Valley Bank and the crypto-focused Signature and Silvergate banks, collapsed. It was a classic run illustrating the risks of the fractional reserve model that Allaire has long highlighted. Even so, Circle’s exposure seemed to be a failure of management. 

In Circle’s version of events, the company had no choice but to hold $3.3 billion, or around 8%, of its reserves with Silicon Valley Bank, the regional bank favored by the tech elite that failed in a black swan event in March. In conversations with Fortune, both Allaire and Circle chief strategy officer Dante Disparte did not express remorse over the decision. They argued that at least some bank deposits were necessary to have quick liquidity for USDC. They said that while they were working to onboard other, more stable banking partners (USDC now keeps its cash reserves primarily with BNY Mellon), Circle’s deposits were as diversified as possible.

“Banking was already, has always been, extremely difficult for companies in this industry,” said Allaire.

As Silicon Valley Bank neared collapse, Allaire and his team worked to near-collapse. He convened a virtual war room on Google Meet, stuck in his Dubai hotel room, eight hours ahead of his East Coast team. He was able to take a pause at breakfast Dubai time, while everyone else caught a few hours of sleep. Disparte canceled plans to attend South by Southwest in Austin, where he was set to appear on a panel titled “Regulating crypto for responsible innovation.”

They devised a plan A, B, and C. The first failed when Circle’s attempted wire to get out its deposits didn’t go through. Disparte remained optimistic that the government would guarantee its deposits—plan B. In case that didn’t work out, the executives spent the weekend negotiating deals with companies who would buy Circle’s SVB holdings for $0.85 on the dollar, which, along with Circle’s own balance sheet, would be enough to restore USDC’s reserves. 

Normally, USDC could be traded 24/7, but one real-time payment partner, the crypto-friendly Silvergate Bank, had collapsed the week before, and Signature Bank was nearing failure. That meant that redemption into dollars was suspended over the weekend. All Allaire could do was watch as traders panic-sold USDC on secondary markets, with its price dropping to $0.88.

By Saturday, Circle had managed to get the peg back to a wobbly $0.98, assuring traders in a blog post that it would “cover any shortfall” if the federal government did not return its full deposits. On Sunday, the FDIC announced it would honor all deposits. Plan B worked as, by Monday, USDC was back to $0.99—but it came too late. 

Hindsight will always be 20/20. Critics say that Circle should have worked harder to get its deposits into a global systemically important bank like BNY Mellon, or hold all its reserves with the BlackRock fund that it created at the end of 2022. They point out that Circle was the top depositor with Silicon Valley Bank, holding a stunning $2.2 billion more than the second-largest non-SVB account holder, the venture firm Sequoia. 

Disparte referred to concerns over its deposit holdings as bordering on “risk reduction to absurdity.”

Whether Circle could have avoided the disaster or not, all that mattered was that USDC was no longer infallible. For a weekend, 1 USDC was not worth $1, no matter what Circle said.

“It’s an impaired product,” said one competitor in the stablecoin space. “You just can’t depeg.”

Unfettered innovation

Tech companies are built around the cult of the founder, and Circle is no different. The snag arises from one uncomfortable truth: Circle is today more like a bank than a Silicon Valley startup.

“In Jeremy’s wildest dreams, he will probably be remembered like Steve Jobs,” said Austin Campbell, now an adjunct professor at Columbia Business School. “The problem is what makes you good in [finance] is actually being remembered like Jamie Dimon, who is exceptionally grouchy about risk.”

Kelly, the Yale researcher, shared the same sentiment. Circle’s decision to hold $3.3 billion with Silicon Valley Bank was a classic disruptor move—Circle was focused on growth, and with banks closing their doors to crypto companies, it went with the best available option without considering the downsides.

“He’s bringing tech ideas into the most senior liabilities of the financial system, which is deposits,” Kelly said. “That’s not the place for unfettered innovation.”

Circle has struggled to find its footing post-Silicon Valley Bank, with its market cap falling from around $43 billion to $26 billion. Meanwhile, its nemesis Tether—the stablecoin firm that eschews any pretense of regulation—has reaped the benefits, seeing its own market cap rise from around $72 billion to $83 billion over the same period. 

“All the talk from our competitors saying that they were the less risky asset and they were heavily regulated,” said Tether CTO Paolo Ardoino in an interview with Fortune, “And then they did a basic mistake in risk management.”

Part of USDC’s decline is out of Circle’s control. A continued rise in interest rates means that investors want to hold their deposits in yield-bearing instruments rather than zero-return stablecoins. Moreover, the U.S. regulatory crackdown against crypto in the wake of FTX’s collapse has led many global crypto users to fear that the government will shut down USDC and turn to Tether instead.

“You had a flight from safety with the concept that an opaque, offshore, unbanked company that was willing to thumb its nose at the U.S. government was safer,” said Allaire. “That is not sustainable.”

In the meantime, after a period of astronomic growth through the pandemic, Circle has had to pare back its ambitions. In late 2022, the firm abandoned plans to go public through a SPAC, which resurfaced Allaire’s history of alleged securities law violations from his pre-crypto career—a lawsuit that the parent company settled in 2002 with no admission of wrongdoing.

After years of contemplating a national bank charter, which could provide Circle direct access to the Federal Reserve, Disparte told Fortune that the firm had to put the plans on hold, with the Office of the Comptroller of the Currency rejecting applications from other crypto companies.

After Circle’s last funding round in April 2022 valued the company at around $8 billion, data from intelligence firm Caplight shows that secondary market shares have been trading at a deep discount, around $4.8 billion in late August.

Even as Circle continues to generate sizable profits, its revenue is dependent on interest income, and the recent downturn has led it to tighten its belt. The firm announced layoffs in July that it described as a “marginal reduction in headcount.” The cuts accounted for around 6% of the company’s roughly 900-person workforce.

So where does Circle go from here?

Thanks to its recent deal with Coinbase, the company has never had more control over USDC—and its future. Allaire understands that Circle cannot be dependent on revenue generated from high-interest rates forever, although he argues that lower rates would push traders back into stablecoins.

Circle still needs different sources of revenue. Rather than leaning into banking services like lending, Allaire still views Circle as a tech company, leading him to stick with his longtime conception of USDC as a platform. In August, Circle debuted a programmable wallet product that would help developers build stablecoin applications.

The firm continues to chip away at its grand vision to remake payments, such as enabling Shopify transactions with USDC, dropping processing fees from 1.5% to 3.5% to close to zero, and partnering with Latin American payment leader MercadoPago to open consumer access to USDC in Chile. Circle is also working with Visa to help merchants accept USDC for settlement rather than fiat, although head of crypto Cuy Sheffield acknowledged that the option mostly appeals to crypto companies. It’s a far cry from Circle’s initial intention of building the universal HTTP of money.

The real-time, near-zero-cost payment future envisioned by Circle seems inevitable, but USDC is no longer leading the charge. Stablecoins and blockchain development aren’t even led by crypto companies anymore. The Federal Reserve launched its own instant-payment service in July and continues to explore central bank digital currencies, or CBDCs. In August, PayPal announced its long-awaited stablecoin alongside Paxos.

Ten years after founding Circle, Allaire remains fixed on the dream that drew him to the crypto industry.

“We still haven’t reached the 1.0 vision of the company,” he said. “We’re close.”