Circle, the stablecoin firm that held a successful IPO valuing it at nearly $18 billion (£13bn) last month, has said it is applying to create a national trust bank in a move that could mean a significant expansion of its role in offering cryptocurrency- and blockchain-based services.

The bank would manage some of Circle’s USDC stablecoin reserves as well as providing custody for assets such as stocks and bonds that are represented via a token on a blockchain network, Circle chief executive Jeremy Allaire told Reuters in an interview.

Circle said it is seeking a charter to form a bank called the First National Digital Currency Bank, N.A., from the US Office of the Comptroller of the Currency, Allaire said.

Crypto optimism

The bank would have the ability to act as custodian for Circle’s own reserves and to hold crypto assets on behalf of institutional clients, but not to take cash deposits or offer loans.

Circle’s stock price has risen rapidly to more than double since its debut in early June on optimism that its dollar-pegged USDC crypto token could have practical applications such as sending instant payments.

The company’s reserves, which it holds to maintain its dollar peg, include short-dated Treasury bills, overnight US Treasury repurchase agreements and cash and are currently held in custody at BNY and managed by BlackRock, Allaire said.

He said some of Circle’s USDC reserves would continue to be held at major banks in addition to First National Digital Currency Bank.

Allaire said the OCC’s approval to form a national trust bank could give it a foundation that leading mainstream financial institutions would “be comfortable building on”.

The White House has been pushing a pro-cryptocurrency agenda, with Congress expected to pass the US’ first regulation for stablecoins early this summer.

Circle’s USDC is the second-largest stablecoin with about 29 percent of the market as of the end of March, according to Circle filings citing data from CoinMarketCap, following market leader USDT from crypto firm Tether with nearly 70 percent of the stablecoin market.

Risks

Stablecoins have been promoted as a relatively low-risk use case for the technology, contrasting to the volatility typical of Bitcoin and other major crypto tokens.

The cryptocurrency sector as a whole continues to be considered high-risk, and companies in the industry have held off filing for IPOs in recent months amidst broader economic volatility.

Stablecoins carry similar risks to other cryptocurrencies, with a major offering TerraUSD abruptly losing nearly all of its value after parent company Terraform Labs went bankrupt in 2022.

Stablecoins Tether and Circle itself have been hit by volatility related to shocks in the broader crypto market in recent years.

The tokens also face the same risk of theft as other digital coins. USDC was part of a stash of $615m stolen from gaming-focused blockchain Ronin Network in March 2022, for instance.