Circle Applies for National Trust Bank to Manage USDC Reserves

Circle, a prominent crypto company known for issuing the USDC stablecoin, has taken a significant step by applying to establish a national trust bank in the U.S. This move is aimed at managing USDC reserves on behalf of the company and ensuring compliance with U.S. regulations. The application has been submitted to the U.S. Office of the Comptroller of the Currency (OCC). If approved, this trust would enable Circle to operate as a U.S.-recognized trust institution, enhancing its ability to provide digital banking services to institutional investors and offer custodial business services.

The establishment of this trust is part of a broader effort by U.S. companies to integrate their services within traditional financial frameworks. The trust will allow Circle to manage its USDC holdings and validate its stablecoin issuing, thereby bolstering USDC’s infrastructure and making it more competitive against larger stablecoins like Tether’s USDT. This move also aligns Circle’s business practices with the new Genius Act, which imposes strict requirements on stablecoin issuers to ensure fair treatment for consumers investing in digital assets. Additionally, Circle aims to extend the reach of the U.S. dollar, making it more powerful and dominant in foreign markets.

The new entity, named the First National Digital Currency Bank, will manage the custody of USDC for institutional clients. Jeremy Allaire, CEO of Circle, highlighted that the approval would enable a regulated yet accessible financial network on the internet. Currently, BlackRock and BNY Mellon manage Circle’s USDC reserves, but the new currency bank will focus on digitizing stocks and bonds. Circle maintains a strong relationship with BlackRock and BNY Mellon and intends to continue using their services even with the new currency bank managing USDC reserves. This shift indicates Circle’s interest in traditional financial services over working with cryptocurrencies like Bitcoin or Ethereum.

Allaire emphasized that Circle has always sought the highest standards to build client trust, which is why the company is creating a national trust company. This move is in line with the demand for trust in the crypto industry, where transactions often need to be mediated through centralized exchanges. Stablecoins, which involve one-to-one pegging of a token with a real-world asset like the U.S. dollar, are increasingly being used for cheap and fast cross-border transactions by institutional investors. Circle currently holds treasury bills to back up its USDC tokens, with BlackRock managing these treasury bills.

Circle’s strategic move to establish a national trust bank is part of a broader trend where companies like Amazon, MasterCard, and Walmart may decide to create stablecoins to compete with USDC. The success of Circle’s IPO has inspired other companies to engage in stablecoin reserves, intensifying the competition in the stablecoin market. However, Tether, the largest stablecoin issuer, has been a dominant player for a long time. Circle faces challenges in maintaining its dominance as other companies enter the market, but its strong relationship with U.S. authorities may provide an advantage in engaging with European markets.