Citigroup considers custody and payment services for stablecoins, crypto ETFs

NEW YORK :Citigroup is exploring providing stablecoin custody and other services, a top executive told Reuters, in a further sign sweeping policy changes in Washington are spurring major financial firms to expand into the cryptocurrency business.

The U.S. bank is among a handful of traditional institutions, including Fiserv and Bank of America, considering pushing into stablecoins after Congress passed a law paving the way for the crypto tokens to become widely used for payments, settlement, and other services. Stablecoins are cryptocurrencies pegged to a fiat currency or another asset, commonly the U.S. dollar.

That law requires stablecoin issuers to hold safe assets such as U.S. Treasuries or cash to back the digital coins, creating opportunities for traditional custody banks to provide safekeeping and administration of the assets.

"Providing custody services for those high-quality assets backing stablecoins is the first option we are looking at," Biswarup Chatterjee, global head of partnerships and innovation for Citigroup's services division, said in an interview. Citi's services business, which includes treasury, cash management, payments, and other services to large companies, remains a core unit for the bank, which has been undergoing a major restructuring.

A McKinsey study estimates about $250 billion in stablecoins have been issued so far, but are mainly used to settle cryptocurrency trades. While Citigroup said last month it was considering issuing its own stablecoin, the bank has not previously discussed its broader digital asset plans.

Citi is also exploring custody services for digital assets that back crypto-related investment products. For example, many asset managers have launched ETFs tracking the spot price of bitcoin since the Securities and Exchange Commission authorized such products last year.

The largest bitcoin ETF, BlackRock's iShares Bitcoin Trust, has around $90 billion in market capitalization. "There needs to be custody of the equivalent amount of digital currency to support these ETFs," Chatterjee said.

Currently, crypto exchange Coinbase dominates that business. In a statement, a Coinbase spokesperson said the company serves as the custodian for more than 80 per cent of issuers of crypto ETFs. 

Citi is also exploring using stablecoins to speed up payments, which in the traditional banking system typically take several days or longer.

Currently, Citi offers "tokenized" U.S. dollar payments that use a blockchain network to transfer dollars between accounts in New York, London, and Hong Kong 24 hours a day. It is developing services to allow clients to send stablecoins between accounts or to convert them to dollars to make instant payments, and is talking to clients about the use cases, Chatterjee added. 

Once wary of allowing traditional financial firms to expand into the often-volatile crypto sector, banking and securities regulators under U.S. President Donald Trump's crypto-friendly administration are taking a more relaxed stance on the sector.

Still, Citi and other firms would have to comply with current regulations, including money laundering and currency controls in some countries for international transfers. Chatterjee said the custody of crypto assets needs to ensure these assets, prior to being acquired, were used for legitimate purposes, and also strengthen cyber and operational security for safekeeping and theft prevention. The issuance of a stablecoin by the bank is also under consideration, Chatterjee added.