Coinbase Global (COIN) has applied for a national trust bank license, joining the throng of other crypto firms seeking a credential that has some in the banking industry skittish.
The company is seeking this novel banking charter from the Office of the Comptroller of the Currency (OCC) to grow its institutional custody business, according to Coinbase vice president and head of institutional product Greg Tusar.
“We’re excited about getting a national trust charter for our custody business and think that down the road, it will open up a number of things for us,” Tusar said in an interview.
Employees of Coinbase, the biggest US cryptocurrency exchange, watch as their listing is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York on April 14, 2021. (Reuters/Shannon Stapleton) ·REUTERS / Reuters
Unlike a full-service national bank charter, a national trust bank license doesn’t allow a company to make loans or take in deposits, and customer accounts typically don’t come with FDIC insurance. Instead, it allows a company to safeguard customer assets, act on their behalf in payments and other transactions, and settle some of those transactions.
Known as a special-purpose national bank charter, this kind of charter also enables firms to custody and manage stablecoin reserves.
Stablecoins are crypto assets pegged to the value of a dollar, another government currency, or gold. They maintain their price through backing with stored reserve assets, most often cash or US Treasurys. In July, President Trump signed the first official legislation establishing a federal framework for dollar-pegged payment stablecoins. The legislation made the OCC the primary federal regulator.
Only one crypto firm, Anchorage Digital, currently holds a national trust bank license, but already this year more than a dozen different businesses have applied for one, according to the OCC’s website. The list includes a handful of other major crypto firms that are involved with stablecoins, including Circle (CRCL), Ripple (RIPL.PVT), Bitgo, and Paxos.
Banks and their lobbyists aren’t happy about these applications. They have raised concerns regarding the applicants’ motivations and business models, including whether some seeking the license could wield it as a backdoor for using stablecoins as a deposit-like banking service without full regulatory oversight.
“Granting deposit-like powers under a trust charter unfairly tilts the playing field and sidesteps Congress and the rulemaking process,” Mickey Marshall, regulatory counsel for Independent Community Bankers of America, wrote in a related op-ed earlier this week.
Crypto or bust: President Trump signs the GENIUS Act, which codifies the use of stablecoins, cryptocurrencies pegged to stable assets like the US dollar or US bonds. (Brendan Smialowski/AFP) ·BRENDAN SMIALOWSKI via Getty Images
Coinbase has no plans of becoming a full-service bank, according to Tusar. Instead, he described the trust bank application as a crucial credential for its custody business, the centerpiece of the prime brokerage division Coinbase is building.
Within financial services, custody involves the storage, management, and administration of a client’s assets. Coinbase stores more crypto assets for customers than any other firm in the world, holding $425 billion worth as of the end of June.
The company already has a limited purpose trust charter issued by the New York Department of Financial Services, which allows it to offer its custody service to investment advisers.
“This is not turning us into a bank,” Tusar said. “We have no ambitions to be a bank, now or in the future.”
Though there may be product developments in the future, Coinbase isn’t pursuing the license so it can custody clients’ stablecoin reserve assets, according to a Coinbase official. Coinbase provides its custody and other crypto financial services products to major US banks and dozens of other financial institutions.
In July, the firm notched an agreement with PNC Financial Services Group (PNC), providing the Pittsburgh, Pa.-based bank’s customers a way to buy, sell, and hold crypto through their PNC accounts. Days later, Coinbase logged another partnership with JPMorgan Chase (JPM) to enable Chase credit card customers to spend their rewards points on the Coinbase platform.
“They’re coming to Coinbase when they want crypto custody, trading, payments, staking, financing on-chain,” Coinbase CEO Brian Armstrong said at a September Goldman Sachs conference.
Coinbase has also been expanding into crypto lending products. It began offering customers a way to borrow the USDC stablecoin using bitcoin as collateral in January. More than $1 billion worth of the stablecoin has since been borrowed against $1.3 billion worth of bitcoin, according to the company.
A crypto Stop & Shop? Coinbase CEO Brian Armstrong speaks at the Stand with Crypto rally, set up by the cryptocurrency company to get out the vote, on March 4, 2024, in Los Angeles. (Jason Armond/Los Angeles Times via Getty Images) ·Jason Armond via Getty Images
“It’s a one-stop shop where they can have this bundle of different crypto services,” Armstrong added.
Armstrong has also rejected attempts to view his company as a bank. “Ultimately, we want to be a bank replacement to people,” he said in a recent Fox Business interview.
In Washington this week, the company kicked off a campaign to mobilize crypto enthusiasts against the banking industry for seeking to curtail the firm’s ability to offer interest-bearing stablecoins.
“Banks want to remove your ability to earn rewards when holding stablecoins,” Armstrong wrote in a post on X the day of the D.C. campaign’s launch. “Hypocrisy from banks is causing problems for crypto again.”
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David Hollerith covers the financial sector, ranging from the country’s biggest banks to regional lenders, private equity firms, and the cryptocurrency space.
