What is Circle X? Crypto Exchange to Challenge More Than Coinbase

Michael del Castillo
Feb 28, 2018 at 09:00 UTC
Updated Mar 1, 2018 at 03:46 UTC
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In the not-so-distant future, VC-backed startup Circle has plans to create a type of crypto cantina.

The news comes following Circle’s buyout of cryptocurrency exchange Poloniex, announced Feb. 26. Notably, the acquisition is one of, if not the largest, acquisitions in the industry to date.

Circle president Sean Neville told CoinDesk:

“Rather than seeing a single Star Wars-type token that is good for everything across the galaxy, we’ll see a proliferation of tokens that have different functions.”

To that end, Neville believes the new service, formally called Circle Poloniex for now, will offer an entirely new kind of exchange, one that gives users access to a whole host of cryptocurrencies and crypto tokens.

According to Circle executives, the acquisition is a win-win for both companies.

Circle customers will once again have the ability to buy and sell bitcoin (a service the company shut down in December 2016) and many other cryptocurrencies. And Poloniex’s customers will get access to Circle’s well-oiled and licensed business machinery, which has been developed over the past five years with $140 million in venture capital.

The benefits for Poloniex will likely be huge since the exchange’s fast-paced business has slowed somewhat in the past several months in the face of an onslaught of complaints about its service.

While some reports put the acquisition price tag at $400 million, Circle execs did not confirm that number to CoinDesk, explaining that the deal started last spring.

According to Circle founder and CEO Jeremy Allaire, the startup now employs more than 200 people and expects to hire 100 more to fulfill its vision of monetary pluralism.

Allaire said:

“It’s a turning point in that we’re really right on the cusp of major consumer products being able to be built on top of these markets and this infrastructure.”

What is Circle X?

At the core of this transformation is what Circle refers to as “Circle X” – the concept that, in the future, exchanges will not be broken down into types at all.

Instead, Neville anticipates, exchanges will be less specialized than they are today and will host a vast array of tokens that represent everything from traditional equities to new assets (as cryptocurrencies already do today).

“We see the future of Poloniex as a full marketplace where tokens can represent all kinds of assets and all kinds of contractual agreements,” Neville said. “We’ll see things that are really meant for settlement or for utility value that may be somewhat less volatile from a markets perspective. And we’ll see some tokens that really are equities, and that is okay.”

Instead of cryptocurrency exchanges being different than stock exchanges being different than cash markets, Circle believes all that trading will happen in one place – in a seamless backend that connects the digital world to the real world.

Allaire told CoinDesk:

“From our perspective, pulling this all together, pulling this under one roof, allows us to realize those broader ideas for consumer products.”

As such, this new type of exchange could not only give traditional cryptocurrency exchanges like Coinbase a run for their money, but could also compete with alternative trading systems (ATS) like tZero and Templum, which focus on listing crypto tokens that are regulated as securities.

As part of this “evolution,” as Neville calls it, he envisions integrating fiat currencies into Poloniex’s current product.

While Poloniex allows trades of roughly 100 different cryptocurrencies and crypto tokens, exchange users have had to move those funds to platforms like Circle’s to convert into fiat. But Circle will be able to leverage its existing regulatory compliance work to accelerate the addition of a number of fiat currencies into the exchange service.

“We have the licenses and the relationships in order to make that happen across U.S. dollars, but also euros and [British] pounds,” he said.

While there are currently no plans to de-list any of Poloniex’s existing tokens, Neville said Circle is are currently building a “legal framework” that will accelerate the rate at which desirable tokens could be added to that platform.

Solving problems

And not only is Circle looking to add to Poloniex’s service, it also wants to take care of some of the issues the exchange was facing as well.

Complaints have been coming in about delayed transactions and ignored requests on public channels for some time. In an effort to confront the problems head-on, Neville said Circle will make available several of its custom tools.

For instance, an internally developed tool dubbed “Diameter” was highlighted as a means to solve Poloniex’s issues handling the amount of customer service requests it receives.

Diameter connects directly to the backend processes of a platform and acts as a filter before human customer service agents get involved. By automatically surfacing solutions based on specific problems, the human teams are able to deal with more traffic through the use of the tool.

Currently, Diameter is used by Circle’s global support team in Europe and the U.S.

“It’s a natural match for what Poloniex needs, particularly in the short-term,” said Neville.

In the long-term, however, perhaps a more crucial benefit of the acquisition relates to dealing with financial regulations. In the press release announcing the acquisition, Circle specifically named compliance as one of the key areas it could help Poloniex.

In interview, though, Neville downplayed the issue a bit, saying that Poloniex has “done a good job adhering to the laws they need to adhere to in order to support their customers.”

Yet, New York Times reporter Nathaniel Popper 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.

While Allaire did not confirm whether the information was accurate, to questions about the tweet, he said:

“We believe the technology developed by firms like Circle is complementary to this mission, and look forward to working closely with all our regulatory stakeholders, both domestic and abroad.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Circle and Coinbase.

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