Federal Oversight for Stablecoins Takes Shape as Paxos Seeks Second Chance at National Trust Charter

Paxos Renews Push for US Bank License as Stablecoin Rules Take Shape

Paxos Trust Company has filed a new application for a national bank charter, marking its second attempt to secure federal oversight for its cryptocurrency operations. The company, which powers PayPal’s PYUSD stablecoin, is trying again after its previous application expired in 2023.

The timing appears strategic. Just weeks before Paxos submitted its new application, President [President’s Name] signed the GENIUS Act into law. This landmark legislation creates the first federal rules for stablecoins in the United States.

Paxos currently operates under a New York state license. The company wants to convert this to a national trust bank charter from the Office of the Comptroller of the Currency (OCC). This federal license would allow Paxos to hold customer money and process payments across all 50 states. Unlike regular banks, a national trust bank cannot take deposits from everyday customers or make loans. Instead, it focuses on managing assets and providing custody services for institutions.

Charles Cascarilla, Paxos CEO and co-founder, stated that OCC oversight would “help build on our historic commitment to maintaining the highest standards of safety and transparency.”

This is not Paxos’s first try at getting a national charter. The company first applied in December 2020 and received preliminary approval in April 2021. However, the application expired in March 2023 when Paxos failed to meet all requirements within the 18-month deadline.

During that period, Paxos faced mounting regulatory pressure. New York authorities ordered the company to stop issuing Binance’s stablecoin in early 2023. This forced Paxos to terminate its partnership with the world’s largest cryptocurrency exchange.

Paxos also dealt with a major enforcement action. Last week, Paxos agreed to pay $48.5 million to settle charges that it failed to properly monitor Binance for illegal activity. The settlement includes a $26.5 million fine and $22 million to improve compliance systems.

The GENIUS Act creates clear rules for stablecoin companies. These digital currencies are designed to maintain a stable value, usually equal to one US dollar. Companies that issue stablecoins must now back each token with real dollars or Treasury bonds held in reserve. The law requires monthly public reports showing exactly what assets back each stablecoin. It also gives stablecoin holders priority if a company goes bankrupt, meaning they get paid before other creditors.

Banks, credit unions, and approved non-bank companies can now legally issue stablecoins under federal oversight. This provides the regulatory clarity that companies like Paxos have sought for years.

Paxos joins several major cryptocurrency companies applying for national trust charters. Circle, which issues the USDC stablecoin , submitted its application in June. Ripple, known for its XRP cryptocurrency, also applied recently for a national charter. The company plans to name its bank “Ripple National Trust Bank.”

Currently, Anchorage Digital is the only cryptocurrency company with an active national trust bank charter in the United States.

The rush reflects the industry’s push for legitimacy. Federal charters provide credibility that state licenses cannot match. They also make it easier to work with traditional banks and large institutions.

However, the applications face opposition. The Independent Community Bankers of America has filed formal complaints against several crypto companies seeking charters.

Source: bravenewcoin.com