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. 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. 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? Allaire was also the founder, chairman and CEO of Brightcove, an online video platform used by media organizations worldwide.

Article Produced By
Jeremy Allaire

eremy Allaire is the founder, chairman, and CEO of Circle. Circle is a consumer Internet company focused on transforming the world economy with secure, simple, and less costly technology for storing and using money. Circle is backed by $76 million from investors including Goldman Sachs, IDG China, Breyer Capital, Accel, and General Catalyst. Allaire was also the founder, chairman and CEO of Brightcove, an online video platform used by media organizations worldwide. I started Brightcove in 2004, and have grown the company rapidly over the past few years, including a successful IPO of the company in 2012 (NASDAQ: BCOV).