Crypto firm Circle eyes bank charter to bolster stablecoin venture

The blockchain firm Circle has signaled a willingness to accept a high level of bank supervision ahead of its public listing and financial services expansion.

Circle on Monday said it intends to become a "national digital currency bank" and it has also filed documents with the Securities and Exchange Commission to go public. Circle is best known for its U.S. Dollar Coin, or USDC, a stablecoin that pegs its valuation to the American dollar.

"It's an acknowledgement of the global concerns regarding how digital currencies like USDC fit into the financial infrastructure," said Dante Disparte, chief strategy officer and head of global policy for Circle. Laws and regulations for digital currencies are still evolving, as is the potential for government-operated central bank digital currencies. Circle is lobbying for national regulatory standards for dollar-based digital currencies, along with standards for reserve management and composition.

If the Boston-based Circle can be regulated as a bank, it will validate the company's approach to cryptocurrency — and set an expectation for other private-sector digital currency providers that they can achieve the same legitimacy.

"If Circle can gain FDIC insurance for a USDC stablecoin-backed bank account, it will sanction the asset class like no other cryptocurrency," said Richard Crone, a payments consultant, adding a USDC stablecoin-backed savings account with FDIC insurance would be a competitive advantage for USDC. "The regulatory review acts as the Good Housekeeping Seal of Approval for the brand, something that no other cryptocurrency currently has nor is pursuing"

Circle has not formally filed with a bank regulator, and Disparte said the Monday announcement is focused on intent ahead of an eventual application. Circle says it wants to be a full reserve national bank, which would require it to hold the equivalent of each user's funds in anticipation of instant withdrawal.

Circle also contends, through a Grant Thornton audit, that USDC is in compliance with U.S. and global liquidity rules.

"Consummating the process of becoming a bank allows Circle to be directly in the line of sight of the authorities," Disparte said.

Regulators and elected officials have expressed numerous concerns about digital currencies, in particular concerning the volatility of their valuations. If the value of a cryptocurrency falls too much, investors won't be able to access their funds.

Circle says it envisions its bank being subject to regulations and supervision from the Federal Reserve, U.S. Treasury, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The blockchain company adds it's working alongside these regulators' efforts through the President's Working Group on Financial Markets and its efforts to manage risks and opportunities deriving from private-sector digital currencies.

New regulations for digital currencies are likely on the way, creating pressure for Circle to get out in front of new rules. The Consumer Financial Protection Bureau has reported a boost in complaints from users who are unable to retrieve funds from digital wallets or reach customer service agents. SEC Chairman Gary Gensler and other Biden administration officials have signaled a tougher stance on cryptocurrency. And the pending infrastructure bill includes more regulations for cryptocurrency and would expand taxes on cryptocurrency users, according to CNN.

By signaling its intent to become a bank and drawing attention to its business model, Circle can also showcase USDC as a stablecoin rather than a cryptocurrency.

Stablecoins are designed to support faster blockchain-based payments and decentralized financial services while avoiding the risks associated with cryptocurrencies such as bitcoin. Circle's USDC stablecoin has grown rapidly over the past year, with more than $27.5 billion in circulation as of Monday, and the company projects there will be hundreds of billions of USDC in circulation during the next few years.

Circle announced a deal in July with Concord Acquisition Corp. to go public on the New York Stock Exchange through a special purpose acquisition company merger. SPACs are popular among fintechs since they allow a faster path to go public and allow the company to share more information with investors ahead of the listing. The Concord deal gave Circle an enterprise value of $4.5 billion.

The public listing can fuel a product expansion that would help Circle add services as the fintech market moves toward embedded finance and so-called super apps. Circle has already introduced Circle Account, application programming interfaces to support open banking connections, distributed finance technology and SeedInvest, which helps firms raise capital from investors online.

A bank license would make it easier to offer lending or other bank services with less reliance on a partnership with a federally chartered bank, though Disparte did not directly address this potential.

"As with e-commerce merchants offering PayPal as an alternative payment option, USDC stablecoins can be used to attract new customers while reducing shopping cart abandonment rates and gaining higher order value; all with dramatically less, if not near-zero fraud, reversed payments and chargebacks," Crone said.

USDC's expansion comes as the Facebook-affiliated Diem stablecoin prepares to launch, most likely later this year. Diem recently moved its headquarters to the U.S. from Switzerland, and partnered with Silvergate Bank, a fully regulated U.S. bank, to gain the same kind of regulatory cover Circle is seeking.

"Circle has contributed to the creation of an industry around digital currency reserve management and custody," Disparte said. "It's an industry that didn't exist five years ago."

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