Stripe made big news on Monday when it announced it would acquire stablecoin enablement platform Bridge for a reported $1.1 billion. This isn’t Stripe’s first foray into the cryptocurrency space. The payment processor previously accepted Bitcoin payments until 2018, but stopped doing so after prices collapsed during the 2018 cryptocurrency winter. “Bitcoin has evolved to do better,” Stripe said in a statement. It is an asset rather than a medium of exchange. ”
However, on October 9, 2024, Stripe re-entered the cryptocurrency space, allowing merchants in the United States to receive Circle-issued stablecoin USDC through their online checkout page, and making transactions in the first 24 countries possible. noted that individuals in over 70 countries have used it. For hours.
The USDC approval, along with the acquisition of Bridge, shows that Stripe is not just experimenting with stablecoins, but is actively investing heavily. But does this investment make sense? On the other hand, the acquisition gives Stripe a chance to dominate the growing and nascent payments market.
Bridge helps businesses exchange dollars and euros for stablecoins and pay salaries to overseas workers and suppliers. Proponents of stablecoins point out that because they are pegged to the US dollar, they have much lower volatility than other cryptocurrencies. Stablecoins also allow businesses to move funds across borders without a bank account, making them faster and cheaper than what is currently available through SWIFT, the largest cross-border payments system. A cash movement method is created to facilitate the movement of cash from bank to bank. countries.
Stablecoins are having a great moment, with Spain’s BBVA bank launching a stablecoin with Visa in 2025 and Swift experimenting with a central bank digital currency, and Bridge looking set to do well in 2024. CEO and founder Zack Abrams says his company’s business will “grow more than 10x by 2024.” Given the USDC approval two weeks ago, Stripe appears to believe that stablecoins will play a key role in the future of payments, and is looking to acquire one of the fastest growing players in the space. So, it makes sense to build a position accordingly. space.
Still, this acquisition price is expensive and the reserve system that underpins the stablecoin market is fraught with risks.
In August 2024, Bridge’s annual trading volume reached approximately $5 billion, and The Information reported that the company charged fees of 0.1% to 0.25% based on trading volume and earned up to $12 million in revenue. I did. Assuming the reported $1.1 billion price is correct and unchanged, Stripe would be paying a 90x revenue multiple. It’s expensive.
For context, in June 2016, Forbes reported that Stripe generated $450 million in revenue on $20 billion in payment volume because its fees were 2.9%, $0.30 per transaction, and large customers received discounts. I assumed it was raised. Stripe was valued at $5 billion in July 2015 and $9 billion in November 2016, so it was valued at between 11 and 20 times revenue.
Paying 90 times revenue for a company with a low take rate in an early market is a lot of money. There are also risks regarding how stablecoin management actually works.
Companies give dollars to the bridge, and the bridge uses those dollars to buy stablecoins from stablecoin issuers Circle and Tether, and those stablecoin issuers manage the reserves. Bridge then partners with local crypto providers in different countries to send those stablecoins to employees, suppliers, and other audiences.
Tether, the largest provider of stablecoins by assets under management, has $118 billion in assets, but its reserves have never been audited. So far, the company’s USDT stablecoin remains pegged to the US dollar, and the company has reported a surplus of $5.3 billion, with assets exceeding liabilities (mainly due to interest income from reserves). ), but we have not yet faced a mass withdrawal event (read: bank run), which could stress test our ability to process withdrawals.
The tech industry likes to opine about the future of money, but at the end of the day, stablecoins are still just another form of cash management, and the viability of the stablecoin market is currently limited to Tether and smaller dependent on the market. ExtentCircle effectively manages the reserves backing its stablecoins.
Remember the Silicon Valley bank failure? The bank went into bankruptcy because it overinvested its reserves in low-yield government bonds when interest rates were below 2%, and the value of the bonds fell as interest rates rose. As depositors rushed to withdraw their cash, SVB had to sell bonds at a loss, further increasing depositor anxiety, further increasing bond losses, and causing the bank to fail.
The technical story is nice, but at the end of the day, this is as much a bet on the viability of the companies managing the stablecoin reserves as it is a bet on the stablecoins themselves. It’s a gamble.
