Can Anchorage bring crypto staking and DeFi to banks?

Posted: 14 January 2021 11:41 pm
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Anchorage has made history as the first US crypto-native fintech to acquire full banking rights.

Anchorage has become the first crypto fintech to acquire full banking rights. CEO Nathan McCauley received approval for the company to be converted from a state trust to a federally recognized deposit taking and transactional bank making it the first crypto-native financial institution in the US.

Anchorage received the approval from the Office of the Comptroller of the Currency (OCC) which has been headed by Brian Brooks since being appointed Acting Comptroller by Secretary of the Treasury, Steven Mnuchin in May 2020.

Balancing regulation and innovation

Brooks’ most important regulatory innovation as Comptroller has been enabling crypto-native fintechs and existing nationally chartered banks to operate on the blockchain. As a result, established firms like JPMorgan or Goldman Sachs have regulatory approval to act as custodians of digital assets, digital asset payments providers and even crypto-miners on any blockchain.

The approval means that Anchorage is now recognized nationally as a qualified custodian allowing it to hold customer deposits including cryptocurrency. More importantly the approval sets out Anchorage’s permission to offer “governance services” and “staking services”.

Per the OCC approval notice:

“(3) Governance Services: Anchorage Trust is authorized to provide on-chain governance services allowing its clients to participate in the governance of the underlying protocols on which their assets operate.

“ (4) Staking Services: Anchorage Trust, via an affiliate or otherwise, is authorized to operate validator nodes, providing staking as a service, and also to provide clients the ability to delegate staking to third-party validators.”

This innovation will allow Anchorage and all other nationally chartered banks to offer banking services to stablecoin issuers, integrate Bitcoin custody into their own service offerings, run nodes on blockchains and facilitate payments using stablecoins. This could lead to Bank of America one day offering Bitcoin and potentially a host of different blockchain related financial projects.

McCauley said in an interview with Fortune, that the company expects more revenue formed by income streams derived from the newly approved banking functions of “staking” and “governance”.

DeFi in mainstream banking and international finance

More importantly, by granting these functions to Anchorage it means that decentralized finance (DeFi) could evolve into an approved method of finance under US laws and regulations. It paves the way for mainstream finance to legitimize projects like Uniswap as tools for a wider audience.

While the regulatory status of these kinds of projects is hazy, clarity may be coming soon.

Brooks yesterday penned an op-ed for the Financial Times in which he said that banking regulation is likely to be based on blockchain technology similar to decentralized finance blockchain algorithms. In the article Brooks wrote that “banking is headed down the same road. And it’s being driven by the technology behind decentralised finance, or DeFi.”

DeFi in the Biden administration

The application to become a nationally chartered bank was first made in November 2020 and the approval elevates Anchorage beyond Kraken and Avanti who have received similar approval as qualified custodians, meaning that they only have approval for receiving deposits of money and digital assets.

With Brooks reported to be stepping down from his position, cryptocurrency markets will watch what approach the incoming Biden administration will take to the regulation of digital assets.

Chair of the House Financial Services Committee, Maxine Waters (D-Calif) has advised President-elect Biden that the OCC should “not assume” it has the “authority to provide a national bank charter to non-bank fintech or payment companies”.

Three non-bank fintechs have now applied for the charters: BitPay which has been recently acquired by Paypal, and Paxos, with Anchorage becoming the first US crypto-native financial institution nationally approved by Brooks as the Acting US Comptroller of the Currency.

Interested in cryptocurrency? Learn more about the basics with our beginner’s guide to Bitcoin, see how to keep your crypto safe with our end to end guide to cryptocurrency security and dive deeper with our simple guide to DeFi.


Disclosure: The author owns a range of cryptocurrencies at the time of writing

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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