Anchorage Advises Clients to Sell USDC, Other Stablecoins Amid Regulatory Concerns

Anchorage Digital, a federally chartered bank specializing in crypto custody services, has advised its institutional clients to divest from stablecoins such as USDC, Agora USD (AUSD), and Usual USD (USD0), and to switch to Global Dollar (USDG) instead. This decision has sparked significant debate within the crypto industry.

Anchorage's rationale for this move is outlined in its “Stablecoin Security Matrix” report, which evaluates stablecoins based on criteria such as regulatory oversight and reserve asset management. According to Rachel Anderika, Head of Global Operations at Anchorage, USDC, AUSD, and USD0 no longer meet the bank's long-term durability criteria due to risks associated with the concentration in their issuance structures. Anchorage will now only support stablecoins that comply with transparency, independence, security, and future regulatory expectations.

The decision comes at a time when the stablecoin market is experiencing rapid growth and increased competition. The recent passage of the GENIUS Act by the US Senate aims to establish clear regulations for stablecoin issuers, with the potential to become law in July if it passes the House of Representatives. This regulatory environment adds complexity to the decision-making process for financial institutions operating in the crypto space.

Anchorage's evaluation of USDC, for instance, gave it a score of 2 out of 5 in terms of regulatory oversight and reserve management. The report highlighted that Circle, the issuer of USDC, keeps about 15% of its reserves in cash in banks, posing a risk. This assessment contrasts with ratings from other entities, such as S&P Ratings, which gave USDC a “strong” rating, and Bluechip, a crypto-focused firm, which gave USDC a B+ rating.

The backlash from industry figures has been notable. Nick Van Eck, the issuer of AUSD, accused Anchorage of spreading misinformation and concealing its trading interests in Global Dollar (USDG). USDG is issued by Paxos and backed by a consortium in which Anchorage is a partner. Viktor Bunin, a protocol expert at Coinbase, described the decision as a “poorly prepared smear campaign.” Coinbase, along with Circle, launched USDC in 2018.

The controversy surrounding Anchorage's directive underscores the broader debate about the role of regulation in the cryptocurrency industry. While some advocate for stricter oversight to prevent fraud and market manipulation, others believe that excessive regulation could stifle innovation and hinder the growth of the sector. Anchorage's decision to ask its clients to sell off certain stablecoins adds another layer of complexity to this debate, as it raises questions about the criteria used to determine which assets are deemed risky.

This move also highlights the challenges faced by financial institutions in navigating the rapidly evolving cryptocurrency landscape. As more traditional banks and financial services providers enter the market, they must balance the need to protect their clients with the desire to capitalize on the opportunities presented by digital assets. Anchorage's decision to target specific stablecoins suggests a cautious approach to managing these risks, but its effectiveness remains to be seen.

The controversy also emphasizes the need for greater transparency and communication between financial institutions and their clients. As the cryptocurrency market continues to evolve, it is essential that investors are provided with clear and accurate information about the risks and potential rewards associated with different assets. Anchorage's decision to ask its clients to sell off certain stablecoins without providing a detailed explanation of its rationale has raised concerns about the lack of transparency in the industry.