Move welcomed by crypto exchanges
The Office of the Comptroller of the Currency (OCC), which is part of the United States Department of the Treasury, issued fresh guidance this week that authorized national banks and federal savings associations to hold reserves for stablecoin issuers.
Paul Grewal, Chief Legal Officer of US-based cryptocurrency exchange Coinbase, tweeted in praise of the guidance. He said that he also hoped the move will lead to adoption by banks of the stablecoins themselves.
Coinbase is part of the Centre Consortium that mints the USD Coin (USDC) stablecoin and a founding member of Facebook-headed Libra Association.
Grewal said that he feels the move provided both clarity and certainty for stablecoin issuers, banks, and consumers and hoped that it would lay the foundation to national banks being able to custody and transact in the stablecoins themselves.
The OCC’s move could also be seen as legitimizing the whole concept of stablecoins, say experts.
Stablecoins are digital assets backed by another currency, typically fiat currency—and in the case of USD Coin, Tether, and Binance’s BUSD, for example, it’s the US dollar. That keeps the price relatively steady, and each digital dollar is backed in reserve by the real thing. According to Coinbase, there are now 2.5 billion USD Coins in circulation, with a 24-hour volume of $475 million.
The crypto market has seen a massive increase in stablecoin use through the year. For instance, Tether, the market’s first and still most popular stablecoin, grew its market cap by more than $10 billion this year, while USDC has grown its supply by 250% in 2020, partly because of its use within the emerging decentralized finance (DeFi) sector, which has grown by $8 billion since June.
The OCC’s guidance on stablecoins this week follows previous guidance in July, which gave banks the go-ahead to take custody of crypto assets for customers and develop banking products around cryptocurrency. That move was also widely hailed by the industry as a positive step towards mainstream adoption of crypto.