The issuer of the USDC stablecoin, Circle, has received a trust charter from the New York Department of Financial Services (NYDFS). Until now the USDC stablecoin has been issued under Circle’s NYDFS BitLicense, with the trust charter providing greater legal certainty around stablecoin holder protections. Earlier this month Circle also received final approval from the Office of the Comptroller of the Currency (OCC) for First National Digital Currency Bank, which will operate as Circle National Trust.
Circle is not alone in pursuing this dual trust structure. Since it entered the stablecoin space, Ripple has issued RLUSD via an NYDFS regulated trust, and has conditional approval from the OCC for a national trust charter. Why are these stablecoin issuers using two trust charters, one national and the other state, and how will they be structured? By contrast, Paxos is keeping a single trust structure and converting its NYDFS trust into a national trust.
For Circle and Ripple, the structure is the same in both cases: the New York trust stays as the stablecoin issuer and directs the national trust to manage reserves and provide custody, although Circle described reserve management as a future capability rather than a launch activity.
Circle’s OCC trust can provide custody to affiliates whereas Ripple has broader approval to also provide cryptocurrency custody to non-affiliated institutions. Notably Ripple acquired Hidden Road Partners which now forms part of Ripple’s prime brokerage offering, so the national trust can provide custody for Ripple Prime. That gives Ripple a standalone commercial reason for the two entity structure, whereas Circle’s split is harder to explain without the strategic and legal arguments below. There are several potential reasons, some obvious, others less so.
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