Are the US banks about to go big on staking?
Many banks across the world have been running crypto PoCs and dipping their toes into the web3 waters for a few years now, even if they haven’t publicly spoken about it. Some of the most well known projects include:
— JP Morgan’s stablecoin JPMcoin which they created to enable instant cross-border payments and settlements between institutional clients.
— Santander’s $20m bond issuance on the Ethereum blockchain back in 2019
— UBS’ CBDC exploration alongside the Swiss National Bank and launching their Digital Cash pilot in 2024
And banks such as Bank of America, Standard Chartered and UnionBank in the Philippines have all expressed interest or are exploring what a stablecoin offering may look like for them.
In general the banks have focussed on the topics of tokenisation, cross-border payments and CBDC’s (although mainly at the central bank rather than commercial bank level). However another growing area for banks is crypto custody and offering crypto services directly to clients. Just today, Spanish bank BBVA got regulatory clearance to provide BTC and ETH trading services to clients and this brings it alongside Standard Chartered in the EU and BNY Mellon in the US who have offered crypto custody since 2022.
Offering crypto custody feels like it should be well within the comfort zone for banks since they keep your fiat money safe, so why not your digital assets? However with a well established crypto custodian ecosystem and an emphasis of self custody across both the retail and institutional space, plus a still developing regulatory environment, the banks have been cautious about jumping in with both feet. From a specific US angle, with Operation Chokepoint 2.0, aggressive SEC enforcement and pernicious approaches like SAB 121 it was no wonder that many US banks were sat on the crypto sidelines.
However the SAB 121 bulletin has now been repealed; meaning that crypto holdings won’t be recognised as a liability on a bank’s balance sheet, the SEC is under new management and has already dropped 11 pending litigations, and Operation Chokepoint 2.0 is being investigated — so the crypto environment for US banks is looking very different.
What’s more the OCC recently published its Interpretive Letter 1183 that gives the official green light to US banks who want to engage in “crypto-asset custody, certain stablecoin activities, and participation in independent node verification networks”.
If we start to see more banks offering crypto custody services to their client base then staking is likely to follow since it offers a low-risk way of generating additional yield — the crypto version of an interest bearing savings account!
We may start to see banks wanting to run their own validators — although I suspect they will likely engage with staking providers rather than wanting to run the hardware and software for each chain, and to avoid needing to hire teams to keep up with the upgrades on the chains.
