Article Author: Yueqi Yang Article Compilation: Block unicorn

As banks' attitudes towards cryptocurrencies warm, the oldest bank in the United States, Bank of New York Mellon (BNY), is expanding its services to the stablecoin giant Circle, the latest sign that banks are relaxing access to the cryptocurrency industry in a more friendly regulatory environment.

The bank will allow some customers to send money to or collect money from Circle through BNY to buy or sell Circle's stablecoins, people familiar with the matter said. Previously, Circle's customers had to send money to Circle using small U.S. banks, which could limit the scale of the stablecoin company's growth.

This new arrangement helps the creation and redemption of Circle's stablecoins and can help New York-based Circle promotes other traditional financial institutions to adopt more widely the U.S. dollar-pegged stablecoins. Stablecoins supporters say that compared with traditional payment methods, stablecoins are a faster and cheaper way to remit money globally, and financial institutions can use them for capital markets and cross-border transactions.

The two companies said in a joint statement: "BNY and Circle will continue to work to bridge the gap between traditional and digital finance and explore how to deepen our relationship to benefit financial markets."

These changes will help make Circle more attractive to investors ahead of a possible initial public offering (IPO). Circle filed a confidential IPO document last year. The company is already the world's second largest stablecoin issuer, with its most popular currency, USDC, having a circulation of $58 billion. Tether, with a circulation of US$143 billion, ranks first.

The collaboration with BNY is worth noting because the company is the Global Systematic Importance Bank (G-SIB), a regulatory name that puts it under particularly strict regulation. Using a large U.S. bank like BNY is one way for Circle to distinguish itself from competitors like Tether. According to previous disclosures and media reports, Tether's banking partners include Capital Union Bank, a small Bahamas-based organization, Britannia Bank & Trust and Deltec Bank & Trust.

Circle's relationship with BNY is something Circle can brag about to help traditional financial companies adopt their stablecoins more securely.

Stablecoin issuers rely heavily on the traditional banks behind the scenes, storing cash and debts that support stablecoins, and processing funds purchased or cashed by customers. Bank regulators are paying close attention to banks' services related to stablecoins for security and prudence, fearing that they pose risks to the entire banking system, such as stablecoin holders cashing in large quantities of tokens at one time.

President Donald Trump promised the cryptocurrency industry that federal banking regulators would allow banks to accept more crypto companies as customers. BNY, regulated by the Federal Reserve and the New York State Department of Financial Services, is not the only bank to warm up on digital assets last week, for example, announced last week that banks would no longer ask for permission before conducting crypto activities, eliminating Biden's guidelines.

left;">At the 2023 regional banking crisis, Circle lost three key banking partners, Silvergate Bank, Signature Bank and Silicon Valley Bank, when they all went bankrupt. More broadly, well-known companies like FTXAfter the lockdown, banks are more alert to the potential risks of working with crypto companies.

Since these crypto-friendly banks are closing, Circle has been working to rebuild its banking relationship. Circle transferred $3.3 billion of the bankrupt Silicon Valley bank to BNY and stored most of its cash and Treasury bonds that support stablecoins.

But Circle also holds some cash in some smaller banks, such as regional bank Customers Bank, to process payments from U.S. customers. Customers Bank has limitations in its ability to undertake crypto-related customers, in part to avoid excessive proportion of crypto companies in its deposits. The Fed also took enforcement action against the bank last year due to compliance flaws in its crypto-customer service.

In Asia, Circle works with Standard Chartered Bank to enable customers to pay and receive funds related to the purchase and sale of Circle stablecoins.

BNY has been approved by the New York State Department of Financial Services to provide a wider range of payment services to Circle, which oversees the New York Chartered Bank, some people familiar with the matter said.

BNY may also attract more crypto-related deposits by providing services to Circle. The company has been discussing banking services with more crypto companies, but is cautious and only working with the safest companies, people familiar with the matter said.

BNY's expanded collaboration with Circle shows that large banks can adapt to the growing interest in stablecoins. But if consumers and businesses adopt stablecoins on a large scale, these tokens may also compete with customer cash, which was originally held as bank deposits.

U.S. lawmakers are developing stablecoin legislation to plan how to regulate these tokens, and the clarity of regulation may open the door for banks to issue stablecoins themselves. Brian Moynihan, CEO of Bank of America, the second largest bank in the U.S., said in late February that Bank of America could offer its own stablecoins if legislation legalizes it.