US banks can hold reserves backing crypto stablecoins 🚨 This article is 4 years old...
US banks can hold reserves backing crypto stablecoins
2 min read
Updated: Apr. 22, 2021 at 12:04 pm UTC
Photo by Sahand Hoseini on Unsplash
In a fundamentally important development for the cryptocurrency industry, the US Office of the Comptroller of the Currency (OCC) said today that national banks and federal savings associations are legally allowed to hold the currency “reserves” that back stablecoins.
Stablecoin reserves can now be held by US banks
For the uninitiated, stablecoins are specialized cryptocurrencies pegged on a 1:1 ratio with a fiat currency — most popularly the US dollar — that offer investors and traders with an easy fiat on-ramp to the crypto market. Examples include Circle, Tether, and even crypto exchange-backed currencies like Binance USD.
1/3 Breaking News: OCC Guidance on National Bank support for Stablecoins — https://t.co/ixsH4qj3MB
— Jeremy Allaire (@jerallaire) September 21, 2020
So far, centralized bodies like custodian BitGo and Tether Foundation were trusted to hold the reserves they claimed: Meaning if there were $1 billion in USDT issued, the Tether Foundation was trusted to actually hold $1 billion in a bank account somewhere. However, this approach created controversies in the broader crypto market, and understandably so.
But as per the OCC announcement, such reserves can now be stored with custodian and recognized US banks, a move that garners could garner trust among crypto market participants (although an ironic move considering the anti-bank ethos of cryptocurrencies).
“National banks and federal savings associations currently engage in stablecoin-related activities involving billions of dollars each day,” said Acting Comptroller of the Currency Brian P. Brooks. He added:
“This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.”
Stablecoin growth booming
In just the past six months of 2020, demand for digital dollar stablecoins has surged, with stablecoins such as the USDC, issued by US firm Circle, growing from just over 400 million in circulation to over 2.3 billion today, representing nearly 500% growth YTD.
Meanwhile, in a statement shared with CryptoSlate, Circle said the USDC has supported over $130B in transactions on public blockchains and is already widely adopted and supported by hundreds of companies in the digital asset and blockchain ecosystem.
3/3 National banks may now hold reserves for full-reserve fiat-backed stablecoins in the US banking system.
— Jeremy Allaire (@jerallaire) September 21, 2020
It added, “With this clarity from the US Treasury Department around the standards for banks to hold reserves on behalf of stablecoin issuers, businesses of all sizes, fintech firms and banks can have more confidence in building on this innovation, while also ensuring that the guardrails and risk management expected from the US banking system can be applied to this new age of internet money.”
But were banks really the answer for building trust in the reserves backing stablecoins?
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Tether
$0.99905
Launched in 2014, Tether is a blockchain-enabled platform designed to facilitate the use of fiat currencies in a digital manner.
Binance USD
$1.00060
BUSD is a stablecoin issued by Paxos in partnership with Binance..
Circle
Circle Internet Financial Ltd is a global internet finance company, built on blockchain technology and powered by crypto assets.
