Stablecoin operator moves US$1 billion in reserves to Bahamas

THE operator of the world’s fifth-largest stablecoin has moved US$1 billion in reserves backing the token to a bank in the Bahamas, as digital-asset firms continue to seek alternative homes for their cash following the collapse of several crypto-friendly lenders in the US.

Archblock, which oversees the roughly US$2 billion in reserves backing its TrueUSD stablecoin, now holds more than US$1.4 billion of those funds with Nassau-based Capital Union Bank, a real-time attestation by an independent accounting firm showed on Wednesday (Mar 15).

That’s up from US$438 million on Mar 10. Archblock started moving funds after New York-based Signature Bank, formerly its largest banking partner, was shut down suddenly by US regulators two days later. It now has no money with Signature Bank, the attestation showed.

Stablecoins like TrueUSD are digital tokens designed to keep a 1-to-1 value with a less volatile asset like the US dollar, typically by holding large reserves of cash and cash-equivalent assets as collateral. They’re commonly used by traders as a way of transferring funds between exchanges and as a safe haven from price swings, making them a vital cog in the system as some of the crypto sector’s most-traded tokens.

The decision to move funds to Capital Union in recent days was the result of worsening banking conditions for crypto businesses in the US, Alex de Lorraine, Archblock’s chief financial and operating officer, told Bloomberg News. “Even operational accounts to just pay taxes, administer payroll and pay expenses are very difficult to get if one is not a multibillion-US dollar business,” he said in a message late on Tuesday.

US banking stress

The failure of three banks in quick succession – Silvergate Bank, Silicon Valley Bank and Signature Bank were all closed by US regulators or wound down voluntarily this month – left many digital-asset companies in the lurch as they rushed to find new solutions for parking their own cash and allowing clients to transfer funds. Another stablecoin operator, Circle Internet Financial, saw its USD Coin token temporarily lose its US dollar peg after revealing it had US$3.3 billion deposited with Silicon Valley Bank.

Crypto firms have traditionally struggled to establish banking relationships, with lenders wary of the sector’s reputation for lax know-your-customer and anti-money laundering controls.

“The failure of the recent banks just highlights the concentration risk that was created by lack of clear regulations,” said de Lorraine. “I doubt you would have seen anything like the turmoil in the last 72 hours if companies like ours would have been allowed to bank with Citi or JPMorgan.”

Archblock had more than US$852 million deposited with Signature Bank as of Monday, screenshots of its attestations recorded by data analytics firm ChainArgos showed, with a further US$202 million already in transit to Capital Union by that time. Archblock confirmed the transfers. A representative for Capital Union didn’t respond to a request for comment.

Short-term treasuries

US regulators and some industry executives have voiced growing concerns about crypto companies heading offshore, as it puts them further away from the reach of enforcement authorities. The collapse of crypto exchange FTX in November was seen by many as manifestation of that problem, with much of the group’s activities carried out by its international entity in the Bahamas.

Capital Union Bank is already a well-known partner for crypto businesses, and offers clients the ability to deposit and transact in digital assets within the same account as traditional currencies or assets. The firm is one of the banking partners for stablecoin issuer Tether Holdings, the Financial Times reported last year.

“We moved money to Capital Union Bank mainly to secure funds as we are able to go straight into very short-term US Treasuries, which in itself is funny,” de Lorraine said. “The funds are with the US, but we need to use an offshore bank to achieve that.”

TrueUSD has more than doubled its circulation in the past month after rival stablecoin BUSD, a token branded by the world’s largest exchange Binance, was forced to close by New York regulators in February. Binance said on Wednesday that it plans to scrap a zero-fee trading structure for Bitcoin bought with BUSD and instead transfer the promotion to TrueUSD, further bolstering its growth prospects.

The stablecoin market is still extremely uneven, however, and dominated by a select few. Tether’s USDT is the largest by far at US$74 billion in circulation, data from CoinGecko showed on Wednesday, with Circle’s USDC in second place at US$38 billion.

TrueUSD’s ultimate parent firm is Techteryx, which bought the intellectual property rights to the asset from Archblock in late 2020. Archblock continues to operate and manage TrueUSD on Techteryx’s behalf, however, via its wholly-owned subsidiary TrueCoin.