Circle officially opens its national trust bank

• Key insight: Circle confirmed that it formally opened its trust bank subsidiary ahead of its quarterly earnings release on Wednesday.
• Expert quote: "This is regulatory bedrock in advance of already-existing law and expected regulation." —Circle CFO Jeremy Fox-Geen
• Forward look: The company also announced that it is publicly launching its open blockchain network for stablecoins, Arc, next month on Sept. 16.

Circle Internet Group has officially opened Circle National Trust in preparation for future stablecoin regulation.

"We went live on July 24 and the trust is legally in operation," Circle Chief Financial Officer Jeremy Fox-Geen confirmed with American Banker on Wednesday.

Circle was granted both a national trust bank charter from the OCC earlier this month and a limited-purpose trust charter from the State of New York last week. The fintech is one of a cohort seeking trust charters from regulators to work with digital currencies under the GENIUS Act.

"The GENIUS Act portends federal level supervision of state ordinances," Fox-Geen said. "The rulemaking for that hasn't been completed yet, but in anticipation of that we wanted to make sure we had our federal level infrastructure in place. This is regulatory bedrock in advance of already-existing law and expected regulation."

Fox-Geen noted that there are no immediate changes to Circle's day-to-day operations, but anticipates that the trust charter will give the company room to expand within federal regulations for institutional digital currency.

"The charter will allow us to offer various custody elements for Circle, and it will over time allow us to offer custody products for affiliates of Circle and potentially other third parties," he said. "If we choose, [it will] allow us some flexibility in how and where we issue the USDC stablecoin and how and where the reserves of that are managed, but those are all operational factors for down the road. The bank has just become legally operational, but we haven't changed the underlying operations of USDC as of yet."

The confirmation came shortly after Circle reported its quarterly earnings on Wednesday. The company reported a total combined revenue and reserve income of $701 million, a 7% increase year over year, but slightly missed Wall Street estimates of $713 million, according to S&P Capital IQ. Circle also increased its revenue outlook for the second half of the year from $150 to $170 million up to $310 to $330 million.

William Blair analysts said in a research note that "while we are confident in USDC's leading market position and ultimate ubiquity, lack of regulatory clarity and uneven adoption will likely contribute to ongoing volatility."

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Circle also released on Wednesday the names of the companies that will initially validate transactions on the Arc network, an open blockchain network announced last year then subsequently built in a test phase, alongside its quarterly earnings announcement. Arc is a stablecoin-based distributed ledger for institutional use, focusing on use cases such as foreign exchange and international transaction settlement.

The distributed ledger is currently in a private main network (or mainnet) phase, according to the company, and is on track for a public mainnet launch on Sept. 16. Starting validators include BlackRock, The Depository Trust and Clearing Corporation (DTCC), Global Payments, Mastercard, Visa, Standard Chartered and the Intercontinental Exchange.

Additionally, BlackRock announced a tokenized real-world asset partnership with the stablecoin issuer and DTCC is separately working with Circle to bring tokenized securities to Arc, Circle CEO Jeremy Allaire said in the company earnings call on Wednesday. "DTC tokenized assets will carry the same protections, rights, and safeguards that investors receive with traditionally held assets," he said.

William Blair analysts said in a note that "Circle [is] moving toward a transaction revenue model as it builds the leading rails for global stablecoin operability and payments. We see Circle building a Visa-like network where scale and low asset intensity power impressive long-term free cash flow [and] return on invested capital."

The company's real-time payments network, launched last year, grew 76% quarter over quarter to reach $14.7 billion in annualized transaction volume. The network also increased the number of enrolled financial institutions by 29% to a total of 175, according to its earnings report.

"We view business updates as positive, including CPN growth and monetization comments and Arc partners/validators," Keybanc Capital Markets analysts said in a note, but "questions on other revenue growth and Open USD overhang remain."

Open Standard is a recently announced stablecoin venture that is planning to issue a blockchain-agnostic dollar-backed stablecoin, Open USD, later this year. Open Standard will function as an independent company with a board made up of the company's more than 140 institutional partners.

Fox-Geen said that Open Standard is a stablecoin consortium, similar to the Global Dollar consortium launched by Paxos Digital last year, but Circle is not a consortium so the comparison is not one-to-one.

"We have thousands of companies building on USDC," he said. "Importantly, a stablecoin is a network business. The value of the network to its users increases exponentially with all the new users on the network. I'd say people entering this space is validating, as we've been doing this for a long time. The question I'd ask of people joining another project which hasn't yet launched is, 'What are their commitments?' In this last 10-day period, Visa and Mastercard stood up at their earnings and said, 'We're multi-coin, we're multi-chain, we don't pick winners. We go where our customers are.' So right now, look where the customers are."