Circle Interpretation: Three Paths for American Banks to Accept Stablecoins

This is a webinar specifically organized by Circle for domestic banks in the United States, titled "Banking on Stablecoins." The opening question is very direct: customers are starting to ask, peers are already moving, but most banks still do not know where to start. Before clarifying this matter, Circle first laid out its foundation—USDC circulation is approximately $75 billion, EURC is about $400 million (the largest euro-denominated stablecoin), and 85% of the reserves are managed by a fund of one established by BlackRock, with assets primarily consisting of U.S. short-term debt with a duration of about 45 days plus repos, custodied at BNY, audited twice a month by Deloitte and published as attestation.

The industry consensus is: the supply of stablecoins has approached $300 billion, with annual settlement transaction volumes exceeding $62 trillion. This presentation was delivered by two people: Edmond Mishaan (Director of Banking Business Development at Circle) discussed business use cases—what scenarios are truly operational, how small banks can bypass correspondent banks, and the boundaries between tokenized deposits and stablecoins; Andy Gallucci (Senior Director of Regulatory Strategy at Circle, previously worked at the U.S. Department of the Treasury) discussed regulation—the changes brought by the GENIUS Act, the current status of the CLARITY Act, what banks will face after January 18, 2027, and whether the 1250% risk weight can be reduced. Finally, there was a Q&A session. Edmond broke down the businesses that banks are genuinely running into three categories: global capital flow (B2B payments, remittances, treasury management), capital markets (the cash leg of tokenized assets), and the accessibility of digital dollars—he candidly stated that the third category is somewhat less relevant, but he still discussed it.

They discussed the following core points:

1. GENIUS Act Effective January 18, 2027
   The GENIUS Act was passed in the Senate last July and is milestone legislation establishing a federal framework for stablecoins. Andy specifically pointed out that it is not a product of overnight efforts: regulation surrounding stablecoins has been brewing for nearly a decade, with about six years spent drafting and refining in the Senate. The law will officially take effect on January 18, 2027, and from that day forward, issuers like Circle will be regulated under the GENIUS Act, with market certainty, bankruptcy handling, holder protection, and redemption rights all beginning to take effect on that day.

2. The Core of Regulation is One Sentence: Reserves Must Be One-to-One and Redeemable at Any Time
   Andy condensed the entire design of the GENIUS Act into one point: it not only guarantees that each stablecoin has a one-to-one corresponding reserve asset behind it, but also ensures that these assets are properly allocated so they can be promptly available for redemption by holders. Transparency procedures, information disclosure, regulatory reporting, risk management, compliance, and AML/CFT obligations all stem from this point. In his words, if all other elements were removed, the most core aspect left would be this one.

3. Capital Treatment Desired by Banks: Can the 1250% Risk Weight Be Reduced?
   Those familiar with Basel standards know that if not classified in the low-risk category, the risk weighting for highly volatile crypto assets can be as high as 1250%, making capital consumption so high that business cannot be sustained. Andy stated that Circle intentionally incorporated safety and security features into its infrastructure design, allowing banks to use these features to communicate with their regulators, arguing that this is the lowest-risk way to handle digital assets. This was the most technically sophisticated and practical selling point of the entire session.

4. Accounting Treatment of Stablecoins: Expected to Be Treated as Cash Equivalents
   If this page could only record one point, Andy chose accounting treatment. The rules will establish a capability for institutions to treat stablecoins on their balance sheets directly as cash equivalents. This is a significant practical breakthrough, providing clear answers for how enterprises can hold and position such assets for the first time. It is expected to be written into the final rules between November and December of this year.

5. Hard Obligations Under GENIUS: Seizure, Freezing, Destruction
   Before GENIUS, Circle's identity was as a money service business under FinCEN and the Bank Secrecy Act; after GENIUS, it became a financial institution under the BSA. The hardest obligation is: under legal orders, Circle and foreign stablecoin issuers with connections to the U.S. must seize, freeze, or destroy stablecoins. This highlights the most unique property of stablecoins—they can circulate outside Circle's direct customer base, yet issuers must still respond.

6. CLARITY Act: Procedural Vote in the Senate is Imminent
   The CLARITY Act is Congress's answer to market structure, overlaying securities law and commodities law onto the digital asset market, determining how various tokens should register and what obligations they bear, and will also include these assets in collateral and broader market activities. Andy stated that it has become the headline of headlines in this field, and the Senate will conduct a procedural vote the day after the speech; the vote itself is procedural, but the signal released is that Congress continues to pay attention to this field, even as the midterm election cycle approaches.

7. Bank Deposits and Stablecoins Are Not the Same Thing
   The token behind a tokenized deposit is a record on the bank's ledger—if I have $100,000 at Bank X, that amount is recorded, but the funds themselves may have already been lent out; this is how a fractional reserve system is supposed to work. Therefore, tokenized deposits are very useful, but only within the four walls of the bank: transferring from JPMorgan New York to JPMorgan Singapore is fine, but sending money to a supplier in the Philippines cannot go out. Andy's judgment is that deposits are relationship-dependent assets that require accounting to support deposit insurance coverage, with CIP tied to specific account holders; stablecoins, on the other hand, do not differentiate between holders and can be exchanged between different issuers.

8. Stablecoins Are the Obvious Settlement Asset in a Tokenized World
   In a tokenized world, Circle views stablecoins as highly complementary to other types of tokenized assets: between tokenized deposits, between tokenized treasuries and bonds, and tokenized securities, stablecoins serve as the central link connecting different types of assets. Evidence in reality is also moving in this direction: in the fully tokenized world promoted by BlackRock and the New York Stock Exchange, there always needs to be a dollar to complete the cash side, and today that role is assumed by USDC—JPMorgan's tokenized money market fund is realized through Circle's collaboration with BNY, and asset management institutions like Baillie Gifford and BlackRock accept USDC for subscriptions and redemptions.

9. RTP and FedNow Cannot Solve Cross-Border Issues; This Is the Real Gap for Stablecoins
   Domestic payments already have good rails, with RTP and FedNow being quite mature, and both transaction volume and single transaction limits are expanding. But they are limited to domestic transactions: using RTP or FedNow cannot connect to SEPA, and to send money abroad, one can only rely on JPMorgan, Citi, or some correspondent banking network, which is slow and expensive. The same payment to a supplier in the Philippines might take three days through three banks, incurring X% in fees; using stablecoins, it takes five seconds, at most ten seconds.

10. For Small Banks, This Is an Opportunity to Level the Playing Field
    Edmond's judgment is that the greatest value of stablecoins lies in allowing banks to no longer depend on correspondent banking. Your customers have no reason to open a second banking relationship for services you do not provide, such as cross-border payments or wire transfers—previously, these were either too expensive or too reliant on correspondent banks. Now, small banks can handle cross-border transactions themselves and can accept deposits from non-residents transferring from overseas: first receiving USDC, then converting it to dollars for deposits. He also reminded that customers do not say, "I want stablecoins"; they say, "I want simpler, faster, and cheaper transactions."

11. A $10 Million B2B Payment Costs Less Than a Cent in Gas Fees
    During the Q&A, when asked about the total cost of a single $10 million B2B payment, Edmond broke the cost down into three parts: the costs of on-ramp and off-ramp (often zero, as there are no minting fees at Circle), the cost of burning, and the transaction itself. Using Circle's soon-to-launch chain, the gas fee for this $10 million transaction is approximately a fraction of a cent, meaning less than a cent. Andy added a more crucial point: this cost is completely unrelated to the transaction amount; sending $1 and sending $10 million costs the same, with significant economies of scale.

12. Circle's Own ARC Chain: Publicly Launching Tomorrow
    When discussing the technical differences between different blockchains, Andy used an early internet analogy—email could be delivered across borders, but there was a long period of fragmentation where various internet services could not communicate with each other; the digital asset space has long been similar. Currently, there are about 100 blockchains on the market, possibly more, and Circle issues assets on 30 of them, but this landscape is retreating into the background: interoperability mechanisms are maturing, and value is beginning to concentrate on specific chains. This is also the reason Circle is developing its own ARC blockchain, which will publicly launch the day after the speech. The advice for banks is to choose a chain with a native stablecoin and infrastructure that meets regulatory requirements, without needing to build everything from scratch.

Edmond Mishaan (Director of Banking Business Development at Circle):

Alright, let's get started. Thank you all for attending this Circle webinar. This session is specifically aimed at domestic banks in the United States. Today, I will begin with an opening introduction. I am responsible for banking partnerships in the Americas at Circle, and in this position, I have been working with many institutions represented here, helping them integrate into stablecoins and the financial technology of the 21st century. Joining me in the discussion is Andy Gallucci, who is part of our policy team and can provide detailed insights on the recent regulatory changes you may have heard about in the media. Let's get started. I want to confirm that you can ask questions through the chat area. So, if you have any questions during the presentation, feel free to drop them in the chat, and we will have a Q&A session at the end to address them.

One more thing I would like everyone to remember is that the true purpose of this sharing is to bring you value, not to push Circle or anything else. So please ask any questions you have, the more specific the better. Educating the industry is part of our job and our responsibility to this sector, and that is the essence of today's session.

If anyone wants to follow up further, or connect with my team, Andy's team, or the compliance, legal, and operations teams, please feel free to reach out. My email is in the registration email we sent you, and you can also find it at the end of this deck. If you have any questions, don’t hesitate to contact us. Now, let's officially begin. As I mentioned, today it will be Andy and me speaking. First, let me briefly introduce Circle. For those who are not familiar with us, we were founded in 2013 and completed our IPO about a year and a half ago. We are the sole issuer of USDC and EURC, which means that the USDC and EURC circulating in the market are issued only by us. We will discuss what these two are later, but I can tell you now that they are the largest regulated stablecoins in the world.

The circulation of USDC is about $75 billion, and EURC is about $400 million, making it the largest euro-denominated stablecoin. One reason we have made so much progress in the banking sector, and perhaps the main reason, is that we take regulation very seriously. You may have seen some of our recent headlines, such as our collaborations with Bank of New York (BNY) and Standard Chartered, with many more to be announced soon.

Andy will elaborate on this, but his team has been actively promoting this in Washington, and the GENIUS Act is one of their achievements. We are also very serious about compliance. In the United States, we were among the first institutions to obtain a NYDFS bit license. We are now also regulated by the OCC because we have obtained a national trust bank charter. As I mentioned, in Europe, we are among the first to comply with MiCA and have been operating under that regulatory framework. The licenses listed here are just a small part of what we hold; there are many more, and we have actually obtained far more than this. We are also regulated in places like Japan and the UAE, which has given Circle a reputation for treating compliance as a top priority globally.

Next, let me briefly explain how we manage the reserves that back our stablecoins. Our stablecoins are backed one-to-one, right? This is very critical. For every token on-chain, for every payment made with USDC, there corresponds one dollar in cash in our bank accounts, which we refer to as reserves. In fact, there is a little more than that, as we keep a buffer in case something goes wrong. Of these reserves, 85% are managed through a fund of one set up specifically for us by BlackRock.

You can visit our website or theirs; the information on both sides is the same, to see the exact asset composition of this fund. It mainly consists of short-duration US Treasury bills, which are short-term government debts with a duration of about 45 days, plus repos. These assets are then custodied at Bank of New York (BNY) and audited twice a month by Deloitte, who will publish these attestations to provide users with transparency: USDC is always backed one-to-one, and the reserves are being managed seriously and prudently. All of this is within the compliance framework of the GENIUS Act, making it a GENIUS Compliant Stablecoin.

So you can see that we really try to work only with top-tier partners to provide customers with certainty and confidence. You can visit our website circle.com, click on the transparency tab, and all this information is available there. This is the outline of what I want to discuss today, so let's dive into the main topic. What exactly is a stablecoin? At the highest level, it is the digital representation of the US dollar on the blockchain. This way, your transactions can flow continuously on the blockchain 24/7, which traditional rails mostly cannot achieve.

Those that can, like RTP or FedNow, are limited to domestic payments and cannot connect directly to people in Europe, Asia, Africa, or South America. It is important to emphasize that not all stablecoins are created equal, and this is one of the key points I hope everyone takes away from this sharing. Again, stablecoins are pegged to the US dollar, so they should be stable. However, if they are algorithmic, where the value is purely determined by supply and demand, they are not stable at all. Some are backed by crypto tokens, like Bitcoin and Ethereum, which also experience significant price volatility and cannot be considered stable. Our type is backed by US dollars, making it very stable, and these dollars are also invested in treasuries.

Additionally, you may have heard a lot about tokenized deposits in the news recently. They are a bit different; the token is backed by a record on the bank's ledger. It works like this: if I have $100,000 at Bank X, that amount is recorded, but the funds may not actually be there because they have already been loaned out—this is how a fractional reserve system is supposed to work.

These are essentially what I have mentioned. So, as I just discussed, these are commercial bank deposits, also known as tokenized deposits. Recently, you may have heard a lot about JPMorgan and Citi Token; they are pushing this type of thing. When you operate within the four walls of a bank, it is indeed very useful, especially for internal fund allocation. For example, if I want to transfer money from JPMorgan New York to JPMorgan Singapore, it is very convenient. But once you need to go outside the bank's four walls, problems arise. If I want to send a B2B payment to a supplier in the Philippines or transfer money to Brazil, the recipients may not be authorized to receive it.

There are also some clearing networks emerging; you may have seen actions from Clearing House and other institutions, but these mainly address domestic payments. My view is this: domestic payments already have many rails that are running well, like RTP and FedNow, and their transaction volumes and maximum amounts are starting to scale up. The areas where tokenized deposits want to compete, and where stablecoins are already competing, are in cross-border payments.

To reiterate, what we are doing is connecting your accounts in the United States, similar to linking the US RTP with Europe’s SEPA. Behind this are just a few different numbers, but they sufficiently illustrate how fast we are expanding. We initially thought that banks would eventually come to use stablecoins, and that moment has now arrived, as you can see from our announcements with these G-SIBs and global banks, and what is displayed here is just a very small sample of the transaction volume we are seeing. Similarly, the supply of stablecoins is now approaching $300 billion, with annual settlement transaction volumes exceeding $62 trillion. I initially wanted to call this a million-dollar question, but at this stage, it is likely worth far more than a million.

So the question is: what is the real use of stablecoins? The three lines below are areas that banks have been focusing on. The first two are relevant to domestic banks in the United States, while the third is less relevant, but we will still discuss it. The first line is global capital flows. As I mentioned earlier, if you are using RTP or FedNow, you cannot access SEPA; it is very difficult for you and your clients to transfer money cross-border.

So you may have to rely on JPMorgan, or Citi, or some kind of correspondent banking network, and this route is slow and expensive. Taking the example of paying a supplier in the Philippines, this payment might take three days, possibly passing through three banks, and incur X% in fees. However, with stablecoins, the money arrives in five seconds, at most ten seconds. In the direction of global capital flows, there are actually many different use cases, including B2B payments, remittances, and treasury management. For example, we have some banks that are opening up this capability to their clients, allowing clients selling goods in Europe to avoid hedging and directly convert their income into dollars on a 24/7 basis, and rebalance balances across global accounts.

The second line is capital markets, which is the second area where we see extremely impressive growth. The world that BlackRock is promoting and the world that the New York Stock Exchange is pushing towards is a world where everything is tokenized, and in such a world, there always needs to be a dollar to complete the cash side, and today, the role of that dollar is essentially filled by USDC.

For example, the tokenized money market fund that JPMorgan is working on is being implemented through our collaboration with BNY. You will also see Baillie Gifford and all these different types of asset management institutions, including BlackRock, accepting USDC for subscriptions and redemptions, with the redemption targets being tokenized money market funds, commercial paper, or bonds. As tokenized equities become increasingly popular, we will see USDC becoming the primary means for entering and exiting these stocks, meaning that the funds moving in and out during the buying and selling of these stocks will go through USDC.

The last direction is the accessibility of digital dollars, meaning whether people can conveniently obtain dollars. This is particularly important in certain geographical locations where the economy may be deteriorating, there may be hyperinflation, or there may be capital controls. For example, Argentina and Southeast Asia represent a secure path to obtain dollars. For instance, we have a partnership with Brazil's Nubank, which provides digital dollar accounts to over 40 million customers. This product is called a digital dollar account, but behind it is actually USDC. So customers can store their money in the form of dollars, and they will also receive a debit card, allowing them to spend in dollars using this card. This corresponds to the examples I mentioned earlier, any of which we can elaborate on.

For smaller banks, this presents an opportunity to bypass expensive correspondent banks to provide cross-border payments, which in the past was prohibitively expensive. We see a very high acceptance of this. So now there are banks that want to accept deposits from non-residents transferred from overseas; they can first receive this money in USDC, convert it to dollars, and then keep it as deposits. Again, your customers will not come to you and say, "I want stablecoin"; they will say, "I want simpler, faster, and cheaper transactions." This system is primarily positioned as another rail, an alternative to wire transfers, and also an alternative to the various payment rails outside. We can delve into these funding flows in the next session.

These are the capital market use cases we just discussed, among which repo has recently gained significant traction. If these resonate with you, we see a substantial rise in institutional interest. If you have use cases related to FX or repo, we are very willing to discuss them in depth. Andy, I will now hand the time over to you.

Andy Gallucci (Senior Director of Regulatory Strategy at Circle):

Thank you, Edmond. Let me start by saying that generally speaking, when we get to this part, people feel they can comfortably fall asleep. However, the regulatory environment surrounding stablecoins, digital assets, and tokenized payments is absolutely critical for understanding different market participants, distinguishing them, and understanding how the various components of the ecosystem work together and collaborate. Additionally, I want to mention that during my talk, please feel free to interrupt with questions; there’s no need to wait until the end. We want to make this as interactive as possible, and there’s a lot of content to cover. So, Edmond, could you turn to the next page? I think we should start discussing the most important and noteworthy development from the U.S., which is the GENIUS Act passed in July 2025.

This is a landmark piece of legislation that establishes a federal framework for stablecoins. To many, this appears to be a kind of overnight success in the U.S., driven by the current government and the White House.

But I think it’s important to recognize that the regulation surrounding stablecoins has been brewing for nearly a decade, with about six years spent drafting and refining this framework in the Senate, piecing it together bit by bit. The GENIUS Act does a few things. I believe the first and most core aspect is that it establishes a national payment system, a payment-oriented regulatory system overseen by banking regulators, namely the Fed, OCC, and FDIC, which are all well-known institutions. It also sets a series of very strict parameters around what stablecoin issuers can do, how they must hold assets, and how they manage risks.

As Edmond just mentioned, the core goal of stablecoins is not only to ensure that all reserve assets backing a stablecoin are present one-to-one but also to appropriately allocate these assets so that they can be redeemed in a timely manner when holders wish to redeem them. If you strip away all other elements of the regulatory system, what remains at the core is this point, which is the essence of the stablecoin regulatory framework. The remaining parts of the GENIUS Act are basically designed around this point to ensure that similar rules from traditional banking law can be applied to stablecoins.

Thus, there are robust transparency procedures, information disclosure, and regulatory reporting, as well as risk management, compliance, and AML/CFT obligations—all of which are included. Regarding the GENIUS Act, I want to mention one more important point, which is the last point: it indeed draws a very clear line between issuers that can be engaged with and provided services in the U.S., meaning their stablecoins can be offered or sold in the U.S., and the type that will no longer be permitted after the GENIUS Act takes effect. So there is indeed a lot to discuss on this page; I think this is fundamentally the most core and tangible part of the regulatory landscape, with each of these requirements having specific implications.

Moreover, there is a lot to discuss here because the GENIUS Act is actually just the beginning. In our view, it is part of a much larger framework of U.S. laws, regulations, and standards that will support what we refer to as the tokenized marketplace. Some of this is what Edmond just mentioned in the context of capital markets. Looking at the progress we are following in 2026, from the perspective of stablecoins, and specifically from the perspective of stablecoin issuers, the most important item is the one below.

For Circle, the most important aspect is that the GENIUS Act is undergoing a very intensive rulemaking cycle, involving all relevant regulatory agencies, like the Fed, NCUA, FDIC, and OCC, which are all issuing rules, AML rules, and a series of implementation guidelines in parallel to advance the goals of the GENIUS Act. This area is certainly open for questions; I think we can explore several directions, such as how the rules interconnect and how the timeline is arranged, which are all worth discussing.

At the same time, Congress is advancing the CLARITY Act, which is our answer to market structure, providing a broader set of rules surrounding digital assets, especially digital commodities and digital securities. Essentially, it overlays existing securities and commodities laws onto the digital asset market, effectively adding another layer on top of the existing two sets of laws, covering the entire digital asset market. This is clearly an extremely important piece of legislation for the entire industry. It establishes rules, determines how various tokens are registered, what obligations they bear, and of course, includes a whole set of market protection measures, while also incorporating these assets into the collateral usage and broader market activity framework.

In terms of process, I know many here are closely following the digital asset space. The CLARITY Act can be said to be the headline of this field, almost daily making the news and being closely watched by everyone in the circle. In fact, tomorrow the Senate will hold a procedural vote on the CLARITY Act, which could potentially advance it all the way to Senate approval before returning to the House. The vote itself is merely procedural, but it is still very important because it signals Congress's ongoing attention to this area. Even as we are about to enter the midterm election cycle, legislative efforts are still moving forward, which is noteworthy.

Before moving on to the next topic, I want to make one last point about CLARITY: it is a very important law for the overall governance of digital assets, but its connection to stablecoins is not so direct. It is a set of complementary rules, but to put it bluntly, GENIUS is our CLARITY for stablecoins; I can’t think of a more fitting description. I see that Salem raised a question about transparency and compliance: Will Circle or USDC perform KYC and due diligence on every transaction? That’s a good question, and there are several layers to it.

I think the first layer is that under GENIUS, and actually even before GENIUS, Circle has been regulated as a money service business under FinCEN and the Bank Secrecy Act. Under GENIUS, this has slightly changed; we have become a financial institution under the Bank Secrecy Act. However, the controls we are subject to are exactly the same as those faced by your institutions and other banks present today; we have to comply with anti-money laundering, sanctions compliance, and these requirements are fully aligned with yours. This means that we have always operated within this regulatory framework.

In addition, the GENIUS Act also overlays some very important technical rules on top of this, aimed at ensuring that issuers like us have a complete set of tools to comply with law enforcement requests. Therefore, according to the GENIUS Act, we, as well as foreign stablecoin issuers with connections to the U.S., must seize, freeze, or destroy stablecoins in accordance with lawful orders. This perfectly illustrates a unique attribute of stablecoins: they can circulate outside of our customer base. So this answers that question; even if these coins are not in the hands of our direct customers, we still have an obligation to respond.

If there are more questions, I am happy to continue discussing, but this could indeed fill an entire session. Yes, and regarding your question, is stablecoin a type of bearer instrument? Yes, it is a digital bearer instrument, which is its most unique aspect. Our customers must go through a full set of compliance due diligence, KYC, sanctions screening, and normal AML processes. Stablecoins can also circulate in the public market, which is precisely where their unique power as a payment tool lies. This means they can settle between parties who are not direct customers of Circle. We, as issuers, are aware of this and must rely on risk management and other standards to assess and measure it.

So there are actually two lines here: one is the customers themselves, and the other is the circulation in the public market. We need to manage both sides, and these two are complementary to each other. This year, we are following up on other matters. Firstly, the SEC and CFTC have proposed a large number of guidelines this year on how to handle stablecoins, just as Edmond mentioned, regarding how to deal with them in the collateral market and what kind of discount rates should apply. The SEC has also proposed a complete framework.

This includes a series of important rules, which can basically be said to mirror what the CLARITY Act will do in the future at the statutory level. If this page can only leave you with one key point, it is that the accounting treatment of stablecoins is undergoing the largest change we anticipated after GENIUS. It will establish a capability that allows institutions to treat stablecoins on their balance sheets as cash equivalents. This is a significant breakthrough in practicality and clearly clarifies how enterprises and various institutions should treat stablecoins. We expect it to be written into the final rules by the end of this year, around November to December, which is a step we have been waiting for since the implementation of GENIUS.

Looking ahead to 2027, GENIUS will take effect on January 18, 2027, and the law will officially be implemented from that day. Issuers like Circle will need to be regulated according to the GENIUS Act. So this is a very important date; all the benefits related to market certainty, bankruptcy handling, holder protection, and redemption rights will all start to take effect at that moment. For any institution, this will change the way they view and position these assets.

So for the stablecoin market and its users, this is a very symbolic date. At the same time, as Edmond just mentioned, we are an institution that issues stablecoins globally. Currently, almost every G20 member is advancing and developing its own set of relevant regulatory rules and frameworks. Countries and regions like Australia, Brazil, Canada, the UK, and South Korea are all making progress step by step. This is actually forming a global regulatory network around stablecoins, which is the foundational layer of global regulation. This is very important because you need to consider regulated cross-border payments and various other mechanisms and arrangements. Meanwhile, the European Union and the Basel Committee on Banking Supervision are also iterating in rounds, adjusting their respective guidelines.

I think the most critical point here is that even though some ready-made rules have been proposed, this area is still evolving and has not been finalized. Well, let's change the topic a bit.

I know Edmond has talked about this from the commercial side, but I think it is equally important to place stablecoins in the context that you, as bankers, are likely thinking about right now, which is how to relate them to deposits and how to view your own digital, tokenized versions of assets. I want to clarify one point at the beginning: in the tokenized world, we see stablecoins as highly complementary to various other tokenized assets. In fact, we believe stablecoins are the natural settlement asset between different types of tokenized assets.

That is to say, between tokenized deposits, tokenized treasuries and bonds, and tokenized securities, stablecoins will play a very unique role, acting as the hub that connects these different types of assets. Looking deeper into the details, I am sure many of you online today are far more professional than I am regarding "what exactly makes a deposit a deposit." But the key difference between the two is, first, structural: stablecoins are backed one-to-one by high-quality liquid assets, namely cash and cash equivalents.

Deposits, of course, can be supported by the bank's own balance sheet, and the reason is sufficient—it's to create credit for doing things that stablecoins cannot and should not do. Deposits are essentially non-interest-bearing instruments. But beyond that, the positioning of stablecoins is, and frankly, it was designed from the beginning for widespread use across institutions and different issuers, without distinction to holders and being interchangeable. Now you can easily move in and out between different types of stablecoins. I believe as the market continues to develop, this will become a unique market characteristic: a dollar-backed stablecoin is a dollar-backed stablecoin, regardless of whether it is issued by Circle, a U.S. bank, or any bank present here.

In contrast, tokenized deposits are essentially an asset that relies on a relationship; it needs to maintain records to support deposit insurance coverage. It also requires a Customer Identification Program (CIP), which is tied to specific account holders. So the functions of these two are inherently different: both are largely inward-looking, while stablecoins are slightly outward-looking and further-reaching.

The last point I think is particularly worth emphasizing at the regulatory level is that the infrastructure is rapidly catching up, and it may even be ahead of the technological development of stablecoins. An important point here is that we at Circle are very focused on how to create a very smooth path for our banking partners, for the banking sector as a whole—that is, those highly regulated financial institutions—to directly utilize the entire infrastructure that our stablecoins operate on. Part of this work is to establish clear governance and standards around the use of this infrastructure; another part focuses on specific guidelines, namely those provided by the Basel Committee on Banking Supervision—the body that sets Basel capital standards—regarding digital assets, especially stablecoins.

In the process of designing this infrastructure, we found that it is entirely possible to find ways to lower banks' capital requirements.

We can consciously design some safety and security features that can serve as the basis for banks to communicate with their regulators and argue that "this is the lowest risk way to handle digital assets." Those familiar with Basel standards know that if you do not fall into that lower risk category, capital requirements can be prohibitively high, as shown in the left image: for a wider range of highly volatile crypto assets, the risk weighting is 1250%. So the key point is, as Edmond mentioned, that this infrastructure and system are not just being developed by us alone; there are a series of partners and large institutions involved.

What we are truly focused on is making all of this simple for certain institutions, to some extent easier to handle—these institutions may not have the willingness to issue their own tokenized deposits or stablecoins, nor the corresponding resources to do so.

This is our answer to scalability and the ability to create such open infrastructure. It allows you to provide interconnected services, enabling your customers to achieve greater interoperability in the field of digital assets and various other tokenized assets, while also keeping the overall risk narrative very simple and clear. Well, I will hand the microphone back to Edmond.

Edmond Mishaan (Director of Banking Business Development at Circle):

Thank you, Andy. This summarizes everything we wanted to discuss. Next, we would like to leave some time for Q&A. Before handing over to your questions, I want to mention: if any questions arise later, you can find my email here; or click the link displayed there, which will take you to a form where you can schedule a time to discuss any stablecoin topics you want to explore. I see Salem; I missed the second half of your first question, so let me quickly add: you asked if Circle would verify the remitter and payee for every transaction. Of course, we will. We will retain all records for all customers and meet all KYC and due diligence requirements. Another point worth mentioning in this context is that our payment system is designed to support cross-border payments.

This is what Andy just mentioned, how we create that more customized, single corridor correspondent type of payment flow. This type of payment flow has the corresponding capabilities, and we clearly treat it as a standard built-in, such as including travel rule compliance information…

So every transaction will come with an encrypted information package; you can think of it as traditional MT 103 information that travels with each transaction, containing the identity information of the payee, as well as the information of the payer. So the answer is definitely affirmative; this is certainly part of what we consider when designing this system and part of our thinking on this matter.

Now, let's move on to the pre-submitted questions. If you have any additional questions that come up, feel free to send them in the chat box, and we will answer them together once we see them. The first question is: I look forward to understanding how this project is planned in terms of fraud, cybersecurity, and risk management.

Andy Gallucci (Senior Director of Regulatory Strategy at Circle):

I am happy to talk about this question, and Edmond can add anything he finds appropriate. Fundamentally, Circle has its own risk management framework, which is enterprise-level and divided into several categories. It does not differ much from how many banks view this matter. We have financial market credit risk monitoring around reserve assets, which is monitored separately. But beyond that, I think when facing a new technology, the most important thing is to build a robust operational risk management framework. So what we do is scenario-based risk modeling to calculate our overall internal capital levels. Of course, as a 24/7 stablecoin issuing institution, we also maintain security and various capabilities in compliance operations around the clock, which is a "the sun never sets" model.

So we take this matter very seriously. I believe one point that the GENIUS Act aims to establish for all issuers is that this is by no means an easy task. The regulatory expectation here is that issuers should operate like banks, but they are not necessarily required to meet the exact same standards as banks.

But the key point is that issuing should become the core objective of a regulated entity allowed to issue stablecoins, and the rules should align with this objective.

Thank you, Andy. Next, let's look at the second question: How does a bank know which stablecoin to use, and what should it value from the issuer? This question is very pertinent. I would say that when looking at stablecoins, or even tokenized deposits, the most important thing is liquidity and whether it can be interoperable. Liquidity refers to whether you can easily access it and whether you can easily offload it. So if I tell you that a cross-border payment can go from T+2, which is two days, to almost instant settlement, but on the other end, no one is willing to accept it, then this matter has no real value for you.

We have spent billions of dollars globally to build channels for deposits and withdrawals, and there is also a secondary network composed of liquidity providers, such as those banks that help us with distribution. It is these things that bring about network effects, and I believe network effects are the most important aspect. You may see other stablecoins emerging, but the depth of liquidity behind them is the bigger question. So what opportunities can stablecoins in cross-border transactions open up for small banks that do not yet have a large global presence?

I would say our main goal is to level the playing field, and we believe stablecoins can largely achieve this because you no longer have to rely on correspondent banking. So now, your customers really have no reason to leave your bank for services that you do not provide, to establish a second banking relationship, such as for cross-border payments or wires, because in the past, these services were either too expensive or you were too reliant on correspondent banks. But today, you have the capability to handle these matters yourself. You have customers, such as some of your retail clients, and you can generate remittance volume; they have no reason to go to those remittance service providers.

You can directly make B2B payments through Circle, using trusted and regulated infrastructure.

Andy Gallucci (Senior Director of Regulatory Strategy at Circle):

If I may, I would like to add something here. Before I joined Circle, I worked at the U.S. Department of the Treasury, and at that time, this was a field I believe everyone was very interested in. The reason is that there is a large overseas expatriate community in the U.S., and the lack of correspondent services in these specific corridors often leads to these communities being underserved in financial services. I live in the Washington D.C. area, so the way I think about this is: there is a very large Ethiopian expatriate community there.

Suppose I am at Eagle Bank in Southern Maryland, near Washington D.C., just as an example, and I have a large expatriate population. Can I use stablecoins to create a single corridor of funds directly to Ethiopia, thereby better serving my own customers? That’s roughly my thought process. What it does is bring the efficiencies that are usually only enjoyed at the wholesale, aggregated level of correspondents down to the level of individual corridors.

Edmond Mishaan (Director of Business Development at Circle):

We received a question from Michelle. Of the previously mentioned $62 trillion in annual settlement volume, what proportion is cross-border? Michelle, I don’t have an answer to that question at the moment, but I will follow up and send you the data later. What we see now is a mixed structure with various uses. What we do is strip away everything related to exchanges, and what remains is a mix of cross-border payments and the transactions I mentioned earlier used in capital markets. I also wanted to mention that a significant portion of this is actually crypto assets being traded in and out. However, since 2020, the volume of cross-border payments has increased by 35 times. So we are indeed seeing a significant rise in usage in this area, and there are actually some very interesting dashboards available.

Cambridge University has a digital analytics dashboard where you can look at very granular, quarterly information. So when you are considering a specific customer group, or for example, an expatriate community, and want to create a flow of funds for them, you can look at that country and see if the local stablecoin usage penetration is already high. There’s another question.

Can you tell us about some of the technical differences between different blockchains? What points should we focus on? How much do we need to understand about how they operate as banks? Also, based on your earlier response regarding different accounting treatments, I think this question can be handed over to you.

Andy Gallucci (Senior Director of Regulatory Strategy at Circle):

Well, I want to start with a metaphor that I often use, which may be a bit old but I think is very fitting, especially for those over twenty. We all remember the early years of the internet. Looking back now, everything seems logical: the internet came, email came, and sending a message across different networks was completely unproblematic; we never thought about the barriers behind it. But in the middle, there was actually a long period of fragmentation where various internet-based services could not interconnect. I feel that the digital asset space has been in such a state for a long time. There are currently about 100 blockchains, and possibly more than 100.

Circle has issued our assets on about 30 of them, but this is slowly fading into the background, partly because the mechanisms for interoperability are maturing, the ability for cross-chain transfers is continuously improving, and value is starting to concentrate on certain specific chains. This is also why Circle is developing its own ARC blockchain, which will be publicly launched tomorrow. The key point I want to make is that we are converging towards the highest standards; after all, this is a financial service, and the standards must be raised.

When banks consider such infrastructure, they must first conduct a risk management assessment; there is no doubt about it, and this homework must be done thoroughly. We do not expect every bank or institution to have the same level of risk management capabilities as we do. However, when we look at blockchains, we have a complete due diligence framework, and we assess from various aspects such as cyber security risk, financial risk, governance risk, etc., covering a wide range. However, it should be noted that these are not the points we want to emphasize.

What we really want to do is enable banks to easily get started with a blockchain without having to build everything from scratch. This blockchain has a native stablecoin, which is a stablecoin that can truly circulate, and it also has a set of infrastructure that meets regulatory requirements.

Edmond Mishaan (Director of Business Development at Circle):

I see a question from the audience, and I will answer it. Is stablecoin cost-effective? If it is a large B2B payment, including both the payer and the payee, for example, a single payment of $10 million, what would the total cost be? When looking at stablecoins, it is important to distinguish between on-ramp and off-ramp costs, and these two parts are often zero, meaning there is no fee at all. For example, minting with us is free, there are no fees, burning incurs a cost, and then there is the cost of the transaction itself, which generally breaks down into these three parts. So the cost-effectiveness of stablecoins is very high.

If you are using our blockchain, which is the one Andy just mentioned and will be launched later this week, for this $10 million transaction, Andy, please confirm for me, I remember the gas fee is about a fraction of a cent, which is less than one cent. This is the total cost required to send $10 million, for example, from you to me.

Andy Gallucci (Senior Director of Regulatory Strategy at Circle):

I want to add that this cost is completely unrelated to the size of the transaction amount, meaning the fee does not increase with the amount. Sending $1 and sending $10 million incurs the same fraction of a cent, exactly the same. This means that the scalability of this technology is very significant; the larger the amount, the lower the cost allocated to each dollar.

Edmond Mishaan (Director of Business Development at Circle):

The only place where you might see some costs is when you need to off-ramp, and even that is not always necessary; many times, it is not required. In some cases, the payee is willing to hold USDC, which is a model we see developing, where people are willing to keep USDC on hand. But in reality, sometimes the other party just wants to receive fiat currency, and then you have to go through the off-ramp. The cost of off-ramping is precisely why liquidity can be so expensive. So the better the liquidity, the cheaper it is to do on-ramping and off-ramping. Well, we sincerely thank everyone for participating in this webinar, and thank you all for taking this time for us. Please contact us through this email, or the email I shared with everyone; we will see it.

We look forward to meeting many of you; we have a lot going on, and we are very interested in continuing to communicate with everyone.