Key Insight
U.S. Bank has recently been appointed as the custodian for Anchorage Digital Bank’s stablecoin platform, marking a significant step in its expansion of crypto-related services.
What’s at Stake
The evolution of stablecoin custody may transform the economics of correspondent banking and the risks associated with counterparties.
Forward Look
Expect to see an increase in bank-led stablecoin initiatives, the possibility of proprietary coin launches, along with tighter regulatory measures.
When U.S. Bank was designated as the custodian for Anchorage Digital Bank’s stablecoin platform, it represented just one of many such partnerships, according to Stephen Philipson, vice chair and head of wealth, corporate, commercial, and institutional banking at U.S. Bank. This Minneapolis-based financial institution is not only safeguarding reserves for several stablecoin providers, but it has also revived its bitcoin custody service, initially introduced in 2021, launched a crypto exchange-traded fund (ETF), and is considering the introduction of its own stablecoin. “We rank among the largest custodians of institutional assets in the industry,” Philipson remarked to American Banker. “With $11.7 trillion in assets under our custody, it’s a substantial business we’ve been engaged in for years. Our role is to provide assurance to asset holders, whether we are acting as a trustee for corporate bonds or an administrator for mutual funds, ensuring that assets are secure and accurately accounted for.”
In August, Anchorage Digital Bank revealed that it had developed the capability to launch white-label, federally-regulated stablecoins, aimed at enabling banks and other firms to issue their own branded stablecoins within the U.S. market. Just last week, Anchorage announced its decision to partner with U.S. Bank as its custodian. Custodians are responsible for holding and managing the underlying assets while ensuring their existence, and in the case of Anchorage, these assets include U.S. Treasurys and highly liquid short-term fixed-income investments, according to Philipson. “This isn’t our inaugural venture into stablecoin custodianship, but it fits naturally within our role in this ecosystem, given our strong bank ratings,” he explained, although he refrained from disclosing which other stablecoins the bank holds custody for, emphasizing clients’ preference for confidentiality.
Currently, only a handful of banks offer stablecoin custody services, including BNY Mellon, which manages the reserves for Circle’s USDC and Ripple’s RLUSD. According to a recent survey by American Banker, only 1% of respondents indicated that they currently provide stablecoin custody. However, more banks are gearing up to enter the market for stablecoin and digital asset custody. The survey found that 11% of banks and credit unions plan to introduce crypto custody services within the next year, while an additional 32% are in discussions but have no immediate plans to launch custody offerings.
Moreover, 15% of survey participants indicated that their institutions are either actively offering or considering the provision of custodial services for publicly traded cryptocurrencies like bitcoin and ether. Meanwhile, 31% are still in discussions about custody but don’t plan to implement any services in the next year. From Philipson’s viewpoint, one of the most promising growth areas for stablecoins lies in cross-border payments, particularly for transactions in developing nations. Amanda Fischer, policy director and COO of Better Markets, shares similar sentiments regarding cross-border transactions, although she expresses some concerns. “While international stablecoin transfers are faster than traditional systems like Swift, the value being transferred is not directly usable cash,” Fischer noted. “Users are essentially transferring an unsecured claim on the stablecoin issuer, and they still rely on correspondent banks to convert that stablecoin into spendable currency. Additionally, stablecoin transactions come with their own set of risks, including counterparty risks from the issuer and potential volatility in pricing due to network traffic and cybersecurity vulnerabilities.”
Philipson acknowledged that stablecoins address specific challenges in cross-border transactions, particularly in developing regions, where they can facilitate more cost-effective processes. Another potential application for stablecoins that U.S. Bank discusses with its clients is for intracompany payments. “For businesses operating globally, it can offer a more efficient and economical method for transferring funds internally,” Philipson explained. U.S. Bank is also exploring the possibility of launching a proprietary stablecoin in collaboration with a partner or consortium. “We’re assessing all these opportunities in light of the Genius Act,” Philipson stated.
According to the American Banker survey, 2% of respondents have already launched a stablecoin, while another 2% are in the pilot phase. Additionally, 4% are planning to pilot or launch a stablecoin, and 4% intend to collaborate with other banks to establish a stablecoin. Notably, 70% of participants are either in preliminary discussions about stablecoin issuance or have not yet engaged in such talks, while 15% have opted against launching a stablecoin.
U.S. Bank’s ambitions in the crypto space extend beyond stablecoins. Last month, the bank reintroduced its cryptocurrency custody services, originally announced in 2021, aimed at institutional investment managers with registered or private funds seeking secure storage for bitcoin. NYDIG, a bitcoin financial services and infrastructure firm, will serve as the sub-custodian for bitcoin. “We take pride in being among the first banks to provide cryptocurrency custody solutions for fund and institutional clients back in 2021, and we are thrilled to resume these services this year,” Philipson stated. “With increased regulatory clarity, we’ve broadened our offerings to include bitcoin ETFs, enabling us to deliver comprehensive solutions for managers seeking custody and administration services.”
Research from Citi has predicted that the stablecoin market could reach $2 trillion by 2028 to 2030. “We’ve engaged with clients to understand who is utilizing stablecoins beyond just the crypto sector attempting to transition off-chain to on-chain,” Philipson noted. “Early adopters appear to be multinational corporations testing stablecoins for intercompany transactions and cross-border payments.” He emphasized, “This is an issue the banking industry cannot afford to overlook. We believe we already provide substantial value in the custody space, and integrating stablecoins into that framework allows us to collaborate within this ecosystem while observing its evolution.”
