Thursday, March 30, 2023

In Crypto Industry First, Visa-backed Anchorage Gets Federal Banking Charter

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A startup called Anchoring announced on Wednesday that it had become the first cryptocurrency company to receive a federal charter from the Office of the Comptroller of the Currency.

As wacky and technical as it may sound, the news is a milestone for the burgeoning crypto industry, as it gives the legal green light for big banks and other traditional financial firms to use Anchorage as a means of offering Bitcoin. and other digital currencies to their customers.

Founded in 2017 by two Veterans from financial giant Square, Anchorage began as a custodial company that provided institutions with a new way to access and store cryptocurrency. While custody is still the bread and butter of the company, Anchorage now offers other services including commerce, loans and tools to help clients navigate the emerging world of “decentralized finance.”

In an interview with Fortune, CEO Nathan McCauley predicted that the new charter will lead hundreds of banks to look to Anchorage as a partner and provide new fuel to the recent cryptocurrency boom.

“This will allow all kinds of people to come to the table who until now have been reluctant to come in. It marks a big change in the availability of crypto assets,” McCauley said, adding that he expects more. large companies are following the example of Square and Microstrategy by adding crypto-currencies to their treasures.

While several crypto companies, including Anchorage and the Kraken exchange, have already received state banking charters, the legal effect of those charters is ambiguous. Conversely, the Federal Charter makes it clear that large banks can use Anchorage to hold their clients’ crypto assets.

The specific charter issued to Anchorage is a trust charter, which does not allow the company to claim FDIC support, as traditional savings and checking accounts do. But McCauley says that’s not a concern for institutional clients, adding that Anchorage has a comprehensive policy with insurance giant Aon to serve as a safety net in the event of a loss.

A new frontier for the crypto industry

The decision by the Office of the Comptroller of the Currency, which oversees the federal banking system, to issue a charter in Anchorage follows a series of recent rulings in favor of crypto by agency chief Brian Brooks. These decisions by Brooks, a former great lawyer for crypto giant Coinbase, notably allow banks to use stable coins– Synthetic money linked to fiat money – and count on blockchain networks to settle transactions.

According to McCauley, these regulatory developments are helping to launch a major update to the country’s financial plumbing. He says it might involve Visa, one of Anchorage’s largest investors, and other major payments providers incorporating crypto-native “rails” in the near future – the industry term for the networks over which financial information circulates.

Anchorage is currently unprofitable. McCauley says his earnings last year were in the tens of millions and he has a “very healthy” balance sheet. The 70-employee company still makes most of its money by charging a commission on the crypto assets it stores, but its lending and trading operations now account for around 25% of its revenue.

Going forward, McCauley expects Anchorage to make more money through now-exotic services like “staking” and “governance.” These terms describe the functionality of new cryptocurrency projects like Tezos and Definition, which allow their digital tokens to serve as voting tools that allow their owners to determine how projects work. These characteristics are also an important feature of the emerging world of decentralized finance (DeFi), including projects like Uniswap, which are largely governed by automated computer programs.

While cryptocurrency continues to gain ground in the world of consumer finance, services like Anchorage and its competitors Coinbase Guard could benefit immensely as banks look to them to provide white label software to serve their own customers. In theory, this could involve people like Bank of America one day deliver not just Bitcoin, but a galaxy of other crypto assets and services to customers.

However, there is no guarantee that all of this will happen. While the crypto market has been hot for the past six months, with the price of Bitcoin eclipsing $ 40,000, it is still subject to severe crashes like the one that occurred on the weekend of January 9-10. . It’s also possible that the incoming Biden administration will replace Brooks at the OCC with a less crypto-friendly leader, while other financial agencies—especially the SEC– remain deeply skeptical of the crypto industry.

McCauley, however, claims not to worry about regulatory headwinds. He notes that Brooks’ guidelines from the OCC, which is also considering federal charters for two other crypto companies, are not new rules but rather interpretations of existing ones – meaning they are less likely to be be canceled.

Meanwhile, Anchorage, which has raised $ 57 million from Visa and others, says it has received many requests from other potential investors and hopes to raise more money in the near future.

More to read absolutely financial cover of Fortune:


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