Coinbase wins a federal charter for its crypto custody business

Coinbase, the American crypto exchange, has won final approval to open Coinbase National Trust Company. The approval came from the Office of the Comptroller of the Currency, the federal regulator of national banks. Coinbase says the regulator signed off on Friday 6 November, and it announced the news on Monday. The new company will hold digital assets for clients, mostly big institutions, under federal rather than state supervision. The regulator had not published its own decision by Monday, so the account here is Coinbase's.

A trust charter is narrower than a banking licence. A trust company holds and safeguards assets for its clients, but it does not take deposits and lend them out as an ordinary bank does. Coinbase said as much in April, when the regulator gave conditional approval: it was not becoming a commercial bank and would not take deposits from the public. Its custody business sits today in a New York trust company, approved by the state in 2018. Ledger Insights, a trade publication, notes that Coinbase already looks after a large share of the bitcoin behind America's spot bitcoin funds, which trade on stock exchanges. A federal supervisor carries more weight with such clients than a state one.

"Custody is foundational to our business," Coinbase wrote in its announcement. "Trusted custody is essential for bringing more of the financial system onchain," wrote Brian Armstrong, its chief executive, on social media. In a statement emailed to Unchained, a crypto news site, the company said the charter "lays the foundation for potential future payment and stablecoin services". It did not say what those services would be.

What the new company may do is modest. Ledger Insights reads the April approval as allowing custody and the transfer of clients' cash and crypto, and little else. Staking, in which tokens are locked up to help run a blockchain in return for rewards, stays with other Coinbase companies. So do trading and lending for professional clients. The trust company may only introduce its clients to those services. Ledger Insights says Coinbase plans to move its whole custody operation out of the New York company over three years. Unchained notes that Monday's announcement gave no dates for any of it.

Coinbase is not the first. Circle, which issues the USDC dollar stablecoin, won final approval for its own trust bank in July. Ripple said last month that it had won final approval for one that will hold the reserves behind its RLUSD stablecoin, according to Unchained and Decrypt. The approvals are contested. On 2 October the Independent Community Bankers of America, a lobby group for smaller banks, sued the regulator in Washington. It argues the regulator has no power to charter crypto firms that do not mainly look after assets for others, and wants the rule behind the charters struck down. Senator Elizabeth Warren has argued that the approvals, Coinbase's among them, are illegal, Decrypt reports. The court has not yet ruled.