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Yahoo
5 days ago
- Business
- Yahoo
Stablecoins go mainstream after Circle's blockbuster IPO. Here's what they do.
Since its June 5 trading debut, stablecoin issuer Circle's (CRCL) stock has climbed more than 500%. The rising provider has issued over $61 billion worth of its stablecoin USD Coin (USDC-USD), making it the world's second largest in today's $253 billion stablecoin market. On June 30, Circle announced that it applied to establish a national trust bank charter called First National Digital Currency Bank, N.A. If approved, it would be another step toward integrating stablecoin into traditional banking and financial markets. Here's a look at how stablecoins work and how they've risen to prominence today. Stablecoins are a type of cryptocurrency whose value aims to mirror that of another asset. For example, someone buying a stablecoin pegged to the US dollar would expect the value of that stablecoin to remain at a dollar, with some referring to the coins as "digital dollars." This sets stablecoins apart from other cryptocurrencies, which can change in value significantly. Stablecoins are a popular payment option for other cryptocurrencies due to their price stability and facilitation of easier and quicker online transactions than traditional funds. Some believe these qualities could bring stablecoins into broader use. "Over the long term, we expect stablecoins to evolve from money-rail of crypto markets to money-rail of the internet," Bernstein analyst Gautam Chhugani wrote when initiating coverage of Circle. "We believe total industry stablecoin supply will reach ~$4Tn over the next decade." Read more: Can you buy crypto with a credit card? See the pros and cons. There are two types of stablecoins: collateralized and algorithmic. Issuers keep collateralized coin prices stable with reserves. For example, many providers issuing stablecoins pegged to the dollar keep reserves of at least $1 (or equivalent holdings) for each coin they issue. With these reserves, users expect to be able to exchange their stablecoins for dollars or other backing assets at any time. Stablecoins can be backed by fiat currency such as the dollar, commodities like gold or oil, and even other cryptocurrencies. Currently, the majority of value in the stablecoin market is held by US dollar or cash equivalent backed stablecoins. However, Circle CEO and co-founder Jeremy Allaire told Yahoo Finance earlier this year that the US shouldn't take that for granted. "There is a digital currency space race, and the US needs to put laws in place that allow for digital dollars to thrive," Allaire said. "[On] the question of whether a commodity money like gold or a digital commodity like bitcoin could play a larger role as a store of value or a reserve asset, I'm open-minded about that. ... I think that could grow over time." Stablecoins got their start roughly a decade ago when the world's largest, the fiat-based Tether (USDT-USD), launched in 2014. It remains the largest stablecoin by market capitalization today, with $159 billion in circulation. Tether is followed by fiat-backed USD Coin and crypto-backed Dai (DAI-USD). Read more: How would Trump's strategic bitcoin reserve work? Dai is an example of a "decentralized" coin, where backing is held in "smart contracts" instead of more centralized reserves. Each time someone creates a Dai token, they lock a specified amount of its backing cryptocurrency into a contract, which is only retrievable by "burning" the Dai, or destroying it. Doing this ensures there's backing for each coin without a single reserve held by a provider. Algorithmic coins, on the other hand, keep prices stable by using an algorithm to control supply, which then impacts price. For example, if the price of an algorithmic stablecoin increases, the algorithm might determine that more coins need to be minted to increase supply and drive the price back down. A significant draw of stablecoins is their ability to facilitate easier and quicker online transactions. With stablecoins already on the "blockchain," the digital ledger that enables cryptocurrency transactions, transfers can resolve in minutes or seconds compared to the hours or days of bank transfers. Without the many intermediaries that facilitate other payment methods, stablecoins can be exchanged 24/7 and across international borders. For transactions that typically come with high fees, such as cross-border transfers and microtransactions, stablecoins can offer a more practical alternative. According to Zach Pandl, head of research at the crypto-focused asset manager Grayscale, reducing the cost and friction of global payments with stablecoins is a significant step forward. "The G20 has an explicit goal to try and reduce the costs and improve the experience of cross-border payments, and there's all kinds of committees and working groups tackling this topic," Pandl told Yahoo Finance. "Stablecoins are the [solution] that in the real world is being adopted by consumers." Between payments, users feel secure keeping their funds on the blockchain compared to other cryptocurrencies since the price is stable. In fact, this stability has led to growing popularity in countries with high inflation, such as Argentina. In addition, since stablecoins are on the blockchain, transactions are kept in public records, offering a level of transparency and security. "Not only will you be confident that your payment will get through, but you can watch it every step of the way," Pandl said. "Users are in full care of their funds." Stablecoins can also be used to generate interest through lending. This specific use case has got a lot of debate over the last year. Some platforms even offer over 20% APR on er, but state regulators have blocked some from offering interest-bearing cryptocurrency accounts and lending programs. It was only this February that the SEC approved the first interest-bearing stablecoin in the US, registered as a security. Stablecoins come with their own set of risks. With collateralized stablecoins, users rely on providers to properly manage reserves to back issued coins and any kind of error can have major consequences. For example, in April 2019, New York Attorney General Letitia James sued Tether and cryptocurrency exchange Bitfinex, alleging that Tether reserves were loaned to Bitfinex to cover a loss, leaving Tether not fully backed. Tether lawyers revealed that for a time, the cryptocurrency was only 74% backed by cash and cash equivalents. In 2021, Tether and Bitfinex reached a settlement with New York's Office of the Attorney General for $18.5 million. For two years after the settlement, both companies released reports regarding the makeup of their reserves. Along with these efforts toward transparency, Tether would later shift the majority of its reserves from commercial paper to Treasury bills. Another concern is the risk of "depegging," which is when a stablecoin's value drops below the asset it's pegged to. This includes both temporary price drops and more significant crashes. In 2022, the algorithmic stablecoin Terra (UST-USD) and its sister coin Luna (LUNA1-USD) plummeted, erasing $60 billion in value. Terra's value was previously maintained through market mechanics, where its connection with Luna was used to push the price higher or lower. "Algorithmic stablecoins are based on confidence and trust in the economic incentives of the stablecoin issuer's underlying ecosystem," Ryan Clemens, an assistant professor of business law and regulation at the University of Calgary, told Yahoo Finance at the time. "Once that trust and investor demand evaporates, they quickly fail in a death spiral." It all began with a drop in price when $150 million in UST was moved off an exchange and $84 million in UST was sold by an unknown party. The drop sparked a sell-off, and while this coin's algorithm attempted to correct for the fall, the run drove Terra from $1 to $0.05 in less than two weeks. "We see run risks which could threaten financial stability ... risks associated with the payment system and its integrity and risks associated with increased concentration if stablecoins are issued by firms that already have substantial market power," US Treasury Secretary Janet Yellen said in a US Senate panel during the crash. "We definitely see significant risks here." There are also concerns about stablecoin's role in illegal activity as it becomes more widespread, particularly if individuals use coins to make untracked payments for illicit purposes. According to a report by the Financial Action Task Force, an international body created to combat global money laundering and terrorist financing, broader usage of stablecoins or virtual assets could "amplify illicit finance risks." "There was approximately $51 billion in illicit on-chain activity relating to fraud and scams in 2024," the report detailed. "The use of stablecoins by illicit actors, including [Democratic People's Republic of Korea] actors and terrorist financiers, has risen, with most on-chain illicit activity now involving stablecoins." Over the past few years, major corporations have been increasingly involved in the cryptocurrency sphere. For instance, Visa (V) started to settle USDC transactions in 2021, and PayPal (PYPL) launched its own stablecoin. With this growing adoption of stablecoins, officials in the Biden administration released a report in 2021 recommending that issuers be regulated as banks. "We're supportive of that recommendation," Circle's Allaire told Yahoo Finance at the time. "We think [this] represents significant progress in the growth of this industry. There's a real recognition that as these payment stablecoins grow, they could grow at internet scale relatively quickly." In 2023, the EU introduced new regulations for cryptocurrency, including stablecoins. The Markets in Crypto-Assets (MiCA) regulation laid out rules, including reserve requirements and transaction limits, that providers and exchanges would have to comply with in order to be made available in the EU. Excitement for the future of stablecoins in the US was especially high after the passage of the GENIUS Act through the US Senate on June 17. Creators of the bill set out to create a federal framework for dollar-backed stablecoins to be issued and used while ensuring protections for consumers. "Millions of people around the world are doing billions of dollars of transactions with these products already ... but I think [regulations] will provide a degree of comfort for both consumers and businesses that want to use these products and deeply integrate them," Grayscale's Pandl said. "Users should have an expectation that they will have the same safety and compliance with appropriate laws as all other financial services technology." The bill's regulations include 100% reserve backing requirements, as well as auditing for stablecoin issuers with market caps over $50 billion. As the act moves forward to the House, eyes will also be on the progress of its companion bill, the STABLE Act, as well as the Clarity Act, a broader crypto market bill. David Hollerith contributed to this post. — Nina Moothedath is a data reporter intern for Yahoo Finance. Sign in to access your portfolio
Axios
03-07-2025
- Business
- Axios
Why crypto companies are rushing for bank charters
Multiple crypto companies have applied for national bank charters, with more expected on the way. Why it matters: Crypto companies are increasingly laying the plumbing for potentially huge new business lines as Washington readies new rules and regulations. Driving the news: The stablecoin company Circle, fresh off its $18 billion IPO, confirmed on Monday that it had applied with the Office of the Comptroller of the Currency (OCC) to establish a national trust bank, First National Digital Currency Bank, N.A. The cryptocurrency firm Ripple announced Wednesday that it too had also applied for a national banking license. And others are seeking approval too, including Fidelity's digital assets business. The big picture: The sudden rush comes as stablecoin legislation, which defines new requirements for issuers in the U.S., moves closer to President Trump's desk. Large issuers will need the imprimatur of the OCC to run a compliant dollar-backed stablecoin if Congress passes the GENIUS Act this year. A national charter would also smooth the path for digital asset firms to expand their business lines, setting them up to offer custody services, tokenized assets and payment infrastructures. Between the lines: National trust banks aren't traditional Main Street banks, and can't accept customer deposits or make loans. Circle said that, if approved, First National Digital Currency Bank would manage the reserve assets backing its stablecoin, USDC, and offer custody services to institutional customers.
Yahoo
01-07-2025
- Business
- Yahoo
Circle applies for U.S. trust bank license after successful IPO
-- Circle is applying to create a national trust bank in the United States, a significant move following its recent initial public offering that valued the stablecoin firm at nearly $18 billion. The company's application to the U.S. Office of the Comptroller of the Currency would, if approved, allow Circle to act as a custodian for its own reserves and hold cryptocurrency assets for institutional clients. The proposed entity would be named First National Digital Currency Bank, N.A. Unlike traditional banking institutions, this license would not permit Circle to accept cash deposits or issue loans. "Circle has long sought to seek the highest standards of trust, transparency, governance, compliance," CEO Jeremy Allaire said in a Reuters interview. "Becoming a publicly traded company is a significant part of that, becoming a national trust company is again a continuation of that." The move comes after Circle's blockbuster IPO earlier this month. Currently, crypto platform Anchorage Digital is the only digital asset company that holds a national trust bank charter in the United States. Related articles Circle applies for U.S. trust bank license after successful IPO Goldman rolls out latest U.S. Conviction List update Blackstone's Cirsa set for Spanish stock market debut around July 9 Sign in to access your portfolio
Yahoo
01-07-2025
- Business
- Yahoo
Why stablecoin issuer Circle wants to be a bank
Circle (CRCL), the stablecoin issuer, has formally applied with the Office of the Comptroller of the Currency (OCC) to get a national trust bank charter, it said in a press announcement late Monday. If the national bank regulator grants Circle approval, it plans to spin up a national trust bank called First National Digital Currency Bank, N.A. Such a charter would allow the crypto firm to custody and manage the reserve assets behind its own stablecoins and offer other fiduciary services. 'Establishing a national digital currency trust bank of this kind marks a significant milestone in our goal to build an internet financial system that is transparent, efficient and accessible,' Circle CEO Jeremy Allaire said in a statement. Reuters was the first to report this development. The move would allow Circle, which has seen its stock soar after its recent IPO, to manage the reserve assets for the stablecoins it issues, thus strengthening the firm's competitive position. It would also check the box for a requirement all US stablecoin issuers are expected to meet under related legislation. Only one other crypto firm, Anchorage Digital, holds such a license. Currently, Circle's reserves are held in custody by the Bank of New York Mellon (BK) and managed by BlackRock (BLK). Circle's stock opened 2% lower on Tuesday. It's up 470% from its June 5 IPO price of $31. President Donald Trump has promised to make America the 'crypto capital of the world' and since he's taken office, the crypto world has seen a flood of doors open to mainstream finance. And no other corner of the industry so far has attracted so much attention from Wall Street as Circle's corner, the $253 billion stablecoin market. From Wall Street banks like JPMorgan Chase (JPM) and Bank of America (BAC) to credit card giants Visa (V) and Mastercard (MA), fintech firms, and even Big Tech companies, a swath of corporate America is gearing up their stablecoin strategies ahead of passage of the first-ever US stablecoin legislation later this year. Unlike other cryptocurrencies, the value of stablecoins isn't intended to fluctuate. Instead, they act as a safe haven for investors waiting out crypto's volatility and in that way are seen as a potential gamechanger in the world of cross-border payments. In practice, stablecoins are managed like money market funds, where for every dollar users put in, issuers must set aside assets in reserve. Known as the GENIUS Act, this stablecoin bill would set standards for how US banks and other financial companies can offer stablecoins and how they would need to manage their reserves in cash and US Treasuries. It would also call for issuers of a certain size to be overseen by the OCC, opening the stablecoin market to a far wider range of players. Another broader crypto market structure bill that is expected to take longer to pass, known as the Clarity Act, will open more doors. This bill includes tokenization, which would clear a path for US firms to begin offering blockchain versions of other assets, such as bank deposits, stocks, and bonds. As issuer of the world's second-largest stablecoin, USDC (USDC-USD), Circle is well positioned to benefit from so much new interest. While no one is quite sure how much stablecoins could change global payments, there's already a flurry of proponents predicting a lot of growth ahead. Treasury Secretary Scott Bessent told lawmakers last month that passing stablecoin legislation could help push the US stablecoin market beyond $2 trillion by the end of 2028. "We view CRCL as an investor must-hold, to participate in the new internet-scale financial system built for the next decade," Bernstein analyst Gautam Chhugani, who initiated coverage of Circle on Monday, said in a note. Bernstein expects the global stablecoin market to grow to $4 trillion over the next decade. David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance. His email is at Click here for in-depth analysis of the latest stock market news and events moving stock prices Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
