The underlying logic behind Stripe’s $1.1 billion acquisition of Bridge

For some, Stripe's acquisition of stablecoin API service provider Bridge for $1.1 billion seems to be an unexpected move. But the fact is that stablecoins are sweeping the globe, with year-over-year growth rates exceeding 50%, and their global transaction settlement volume is more than double that of Visa.

As the saying goes, "the ducks know the water is warm before people do." As one of the three major payment giants in the US, Stripe has been frantically experimenting with "Pay with Crypto" this year, and has finally placed a big bet. Acquiring the 2-year-old stablecoin API company Bridge.xyz for $1.1 billion has created the largest acquisition deal in the crypto industry.

This article will start with stablecoins, then look at Bridge's business logic, and finally look at Stripe's acquisition logic.

I. The Rise of Stablecoins

The recent State of Crypto Report 2024 released by a16z Crypto has clearly stated that stablecoins have become one of the most obvious "killer applications" in the Web3 field. Driven by the widespread adoption of smartphones and the implementation of blockchain technology, stablecoins may become the greatest financial empowerment movement in human history.

Stablecoins make value transfer simple, with their quarterly transaction volume already more than double the $3.9 trillion of Visa, settling assets worth trillions of dollars annually, fully demonstrating their practicality. Furthermore, measured by daily active addresses, stablecoins account for nearly a third, or 32%, of daily cryptocurrency usage, second only to decentralized finance (DeFi) at 34%.

(State of Crypto Report 2024: New data on swing states, stablecoins, AI, builder energy, and more)

Additionally, according to Visa's stablecoin report, the total supply of stablecoins is around $170 billion. They settle assets worth trillions of dollars annually. There are about 20 million addresses on-chain that transact in stablecoins each month. Over 120 million on-chain addresses hold non-zero stablecoin balances. These numbers all indicate that stablecoins are a currency running in parallel to the traditional financial infrastructure - five years ago it was just starting from near zero.

There are also some crazy stablecoin statistics:

- Stablecoins are now the sixth-largest buyer of US Treasuries;

- 30% of cross-border remittances are done through stablecoins;

- Major companies like Visa, PayPal, Square, and Mastercard all have stablecoin projects;

- SWIFT and some sovereign nations are exploring the utility of stablecoin payments.

- The use of stablecoins for non-crypto purposes is becoming more prominent, such as remittances, cross-border payments, payroll, trade settlement, and merchant settlement.

II. What is Bridge

Bridge was founded by entrepreneurs Sean Yu and Zach Abrams, and is a stablecoin API engine that provides software tools to help companies accept stablecoin payments. The two founders previously sold their Venmo competitor Evenly to Block in 2013; Abrams was also a former senior employee at Coinbase.

Bridge's Orchestration API is an API that integrates stablecoin receipts and payments into the existing business of Web2 companies, with Bridge handling all the compliance, regulatory, and technical complexities.

Bridge's Issuance API can help users issue their own stablecoins and provide an investment option currently yielding 5% on US Treasuries to improve capital utilization.

This set of APIs, combined with Bridge's own 1) stablecoin cross-chain transactions, 2) fiat/crypto in-and-out exchange, and 3) virtual bank accounts provided by Leed Bank, can help Web2 users use stablecoins for receipts and payments more conveniently, with a smoother, seamless user experience.

Bridge states that using its API can transfer funds globally in minutes, seamlessly send stablecoin payments, convert local fiat currencies to stablecoins, and provide US dollar and Euro accounts for global consumers and businesses to save and spend in US dollars and Euros.

This is not fundamentally a major innovation, but Bridge's strength lies in making the interaction flow more convenient for Web2 users.

(https://www.bridge.xyz/#secSolution)

According to the Foresight News article "What is Bridge, the company Stripe acquired for $1.1 billion?", Bridge has attracted many clients including SpaceX. According to Fortune magazine, SpaceX uses Bridge to collect payments in different currencies in different jurisdictions and transfer them to its global treasury through stablecoins.

Bridge has also partnered with crypto companies like the Stellar blockchain network and the Bitcoin payment app Strike to provide infrastructure for their own stablecoin payment features. Additionally, Coinbase has adopted Bridge's services to support transfers between Tether on TRON and USDC on Base.

According to Forbes, Bridge had previously raised $58 million from investors, including a $40 million Series A round that valued the company at $200 million, with investors including Sequoia Capital, Ribbit Capital, Index Ventures, Haun Ventures, and 1 confirmation. This time, the $1.1 billion acquisition price represents a 5.5x premium, and is also Stripe's largest acquisition ever, as well as the largest acquisition deal in the crypto industry to date.

The $1.1 billion acquisition price is not crazy, compared to the multi-billion dollar valuations of crypto protocols, where the only exit liquidity is to dump worthless governance tokens onto the market.

III. Stripe and Bridge's Collaboration

Stripe's collaboration with Bridge is essentially a continuation of the rise of stablecoins story, and their integration can further help Stripe's "Pay With Crypto" strategy take shape, allowing Stripe to handle stablecoins more easily and making transactions more transparent and secure.

(x.com/Stablecoin/status/1848390039975469094)

Let's look at Bridge's latest announcement:

"Bridge and Stripe will work together to accelerate the adoption and utility of tokenized dollars, making it easier for everyone in the world to move, store, and spend money.

When we launched our API 18 months ago, the world was very different. Many were questioning the utility of the entire digital asset space, and stablecoins were impacted as well. Regulators, banks, and fintech companies were unable or unwilling to deeply engage with this new medium of exchange.

But since then, some of the largest global financial institutions, like Visa and SWIFT, have started natively supporting stablecoins. Policymakers around the world are working to provide clarity and support for stablecoin infrastructure, recognizing the strategic importance of this technology to the current financial system.

Behind the scenes, stablecoin adoption and usage is accelerating rapidly.

Soon after launch, several cross-border payment companies integrated our API, proving stablecoins could make global money movement faster and cheaper. Then we partnered with government agencies to disburse aid funds, supporting thousands of frontline workers in Latin America. After that, we built Virtual Accounts to enable fintech companies like Dolar App and Chipper Cash to let global consumers and businesses hold and spend US dollars.

Through each use case, we've proven to ourselves and the outside world that stablecoins can become the core global money movement infrastructure, representing a new payments platform. This isn't because consumers or businesses inherently want 'crypto', but because stablecoins solve key financial problems. They make money more fluid, more economical to hold, and cheaper to remit.

Stripe and Bridge share a vision that our increasingly globalized world needs better money. Money that can flow across borders; that anyone in any country/region can freely use; and that can be remitted for nearly free.

Crucially, we both believe that major financial service transformations don't happen overnight. Change takes years of accumulation. Continuous product and platform improvements, and building trust with customers, regulators, and partners.