Today Circle announced that BNY Mellon would be the primary custodian for the USDC stablecoin. The Bank is the world’s largest conventional custodian, with more than $46 trillion in assets under custody or administration. USDC is the second largest stablecoin with a market capitalization of almost $52 billion.
In February last year, BNY Mellon announced the creation of a Digital Assets unit, and a month later, it announced it had selected Fireblocks as its technology partner for digital asset custody. Fireblocks has gone on to raise more than $1 billion in funding.
“We are at a point in the evolution of our industry where the digitization of assets is presenting new and exciting opportunities to a broad range of market participants,” said Roman Regelman, Head of Digital at BNY Mellon. “Our role as a custodian for USDC reserves supports the broader marketplace and brings value to clients, founded on our role at the intersection of trust and innovation.”
By choosing the biggest custodian bank, it ticks all the boxes for Circle, which is positioning itself as a quality stablecoin. This contrasts with the largest stablecoin, Tether, which has been fined by multiple regulators, including for misstating that the stablecoin was fully backed when it was not.
When Circle first shared the asset backing audits for the USDC stablecoin, there was some criticisms about including commercial paper. The company promptly changed the asset mix, limiting it to only bank balances and treasuries. Additionally, Circle is keen to become a bank.
It has a pending SPAC deal which values the company at $9 billion. An area where Circle could potentially cross swords with regulators is over one of its main business models. USDC has been heavily used by DeFi lending protocols and centralized cryptocurrency lenders. USDC stablecoin holders earn attractive interest rates by depositing their stablecoins which are lent to others against cryptocurrency collateral.
Rather than just letting others profit from these deals, more recently, Circle has looked to get involved in them. And the SEC considers most crypto lending as securities, as evidenced by its settlement with crypto lender BlockFi.
Meanwhile, State Street, the other major conventional custodian, has also launched a digital asset division State Street Digital and partnered with Copper for custody technology.
