The United States Treasury has given national banks the all-clear to make use of stablecoins running on public blockchains.
According to an official press release from the Office of the Comptroller of the Currency (OCC), national banks and federal savings associations will be allowed to use blockchain technology and stablecoins for payment activities and other ‘bank-permissible’ functions.
The announcement notes that public blockchains, which it calls Independent Node Verification Networks, may now be used by national banks to validate, store and record transactions. These institutions can also serve as nodes on public blockchains and act as validators. The OCC notes that banks should comply with applicable laws and banking practices.
Acting Comptroller of the Currency Brian Brooks said that the move shows that the United States is looking to support innovation in the financial and banking sector.
“While governments in other countries have built real-time payments systems, the United States has relied on our innovation sector to deliver real-time payments technologies. Some of those technologies are built and managed by bank consortia and some are based on independent node verification networks such as blockchains,” Brooks said in a statement.
The Acting Comptroller added that the President’s Working Group on Financial Markets had released a strong framework that will welcome an era of stablecoin-based financial infrastructure while managing the risks associated in a ‘technology-agnostic way’.
“Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products,” Brooks added.
Tapping into blockchain benefits
The announcement also notes that the federal banking system’s effort to tap into public blockchains may enhance the efficiency and stability of payments as well as make use of real-time payments being used around the world.
It is noted that using stablecoins and public blockchains may provide more resilience than other payment networks due to the decentralized nature of these systems. The release also notes that there are potential risks using blockchain-powered systems but counters that point by stating that banks have vast experience in managing risks associated with various electronic systems.
Compliance risks are also mentioned and banks will have to take guard against potential money laundering and criminality risks.
Huge win for crypto and stablecoins, says Circle CEO
Jeremy Allaire, cofounder and CEO of payments and treasury infrastructure firm Circle, was one of the first people to share the news through his Twitter profile and described the move as a “huge win for crypto and stablecoins”.
1/ Breaking major news from US Treasury OCC, the largest US banking regulator (@USOCC), with new guidance allowing US banks to use public blockchains and dollar stablecoins as a settlement infrastructure in the US financial system. https://t.co/gQFWISWUnc— Jeremy Allaire (@jerallaire) January 4, 2021
Allaire went on to unpack what the move means for the industry as a whole and its potential to fundamentally change the way the global financial system works in a series of Tweets.
“The new interpretive letter establishes that banks can treat public chains as infrastructure similar to SWIFT, ACH and FedWire, and stablecoins like USDC as electronic stored value. The significance of this can’t be understated. Decentralized, permissionless, open source and internet mediated software is literally becoming the foundation for not just the US financial system but for the global economy,” Allaire wrote on Twitter.
The Circle CEO also highlights the fact that leading US dollar pegged stablecoins like USDC and Tether could soon be used as mainstream mediums for a variety of settlements and payments. Vallaire also noted that regulated financial institutions will now be able to run blockchain nodes and become validators.