In brief
- Paxos has applied for a federal bank charter.
- There are no federally regulated "crypto banks" yet, though several crypto firms have applied for charters.
- The Acting Comptroller of the OCC has encouraged crypto companies to apply for national charters.
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Paxos, a stablecoin provider and digital asset company, has applied for a US national trust bank charter with the Office of the Comptroller of the Currency.
If successful, Paxos, which is already regulated as a trust company in New York, would be “the first custodian of digital assets to be regulated at both the state and federal levels,” Paxos General Counsel Dan Burstein wrote in a blog post today.
The resultant Paxos National Trust would be a subsidiary of Kabompo Holdings, which is incorporated in the Cayman Islands.
Paxos already does a little bit of everything. It offers cash and stablecoin custody services, lets customers trade crypto through its itBit exchange, issues stablecoins (including BUSD with Binance and PAX), and uses tokenized settlement for commodities trading.
Additionally, Paxos’ New York charter enables it to provide some fiduciary services.
In its OCC filing, Paxos said it will initially “conduct only certain activities that are currently conducted by Paxos’s New York state-chartered trust company and supervised by the [New York Department of Financial Services].” However, it stated, “Other activities conducted by Paxos affiliates may be migrated to Paxos National Trust over time based on operational, financial and legal considerations.”
The filing does not mention its business with PayPal. In October, the payments company tapped Paxos Crypto Brokerage to provide crypto trading and custody services for Bitcoin, Bitcoin Cash, Ethereum, and Litecoin within the PayPal app.
Paxos has competition among its crypto cohort to be the first crypto bank with a national charter. BitPay and Anchorage have also recently applied for federal banking charters, likely heartened by the encouragement of Acting Comptroller of the Currency Brian Brooks, who is himself a former Coinbase executive.
In an interview last month with Forbes, after BitPay and Anchorage’s applications were submitted, Brooks indicated that national trust bank charters would be one way for crypto businesses that are currently regulated at the state level to operate nationally without getting a money transmission license.
He said, “If we have crypto banks, which I think we will very shortly, I think it is in their interest they will have to comply with one set of rules nationwide, that’s the way markets grow.”
Currently, the two “crypto banks” set to operate in the US—Avanti Financial and Kraken Financial—have Wyoming state charters to act as special purpose depository institutions.
In explaining Paxos’ move, Burstein indicated it’s really about doing business across state lines with fewer headaches: “Our mission is to modernize financial market infrastructure and enable the movement of any asset, any time, in a trustworthy way. A national Trust Bank charter would help us realize our goal by enabling us to serve customers across the country in the most efficient way.”