What Happened?
Paxos, the company behind the issuance of PayPal’s stablecoin, is once again applying for a national trust bank license from the U.S. federal government, aiming to expand its operations from New York State to the entire United States to attract larger institutional clients that prioritize compliance and security.
This is not Paxos’ first application; its previous federal license application lapsed in 2023. Recently, the company paid nearly $50 million to settle with New York state regulators due to past anti-money laundering failures during its collaboration with Binance. After resolving these historical issues, Paxos has restarted its national expansion efforts.
Paxos’ move comes at a favorable time as the U.S. GENIUS Act establishes a federal regulatory framework for stablecoins. Meanwhile, other stablecoin issuers such as Circle and Ripple are also applying for federal licenses, reflecting that major players in the crypto industry are actively seeking inclusion in a national regulatory system for broader market recognition and development.
Is the PayPal Stablecoin Backer Aiming to Be the “National Team” of the U.S.?
Paxos, the behind-the-scenes driver of the PayPal USD stablecoin (PYUSD), is now planning to upgrade its local New York state license to a national bank license. To this end, they have once again submitted an application to the Office of the Comptroller of the Currency (OCC), hoping to expand their business across the United States.
This national license is akin to a “federal-level” pass. Once obtained, Paxos would not only be able to legally safeguard assets and process transfers for customers across the U.S., but its entire operations would also be directly supervised by the federal government. This is highly attractive to large investment institutions that prioritize safety and compliance. However, it is important to note that Paxos will not operate as a traditional bank like Citigroup or Fubon; its business scope does not include public deposits or loans.
OCC approval would mean that Paxos becomes a nationally regulated stablecoin issuer.
Charles Cascarilla, co-founder and CEO of Paxos, stated in a statement: “The supervision of the OCC will help reinforce our long-standing commitment to maintaining the highest standards of safety and transparency. We believe that blockchain has transformative potential as a force for financial freedom, and applying for a national trust bank license will enable us to continue providing the safest and most trusted infrastructure for our business partners and consumers.”
Putting the Binance Collaboration Behind, Paxos Makes a Comeback!
This is not Paxos’ first attempt to apply for a federal license. The company initially submitted its application in December 2020 and received preliminary conditional approval from the OCC in April 2021. However, according to regulations, conditional approval will lapse if operational requirements are not met within 18 months. Paxos’ initial approval expired on March 31, 2023.
While Paxos did not explicitly explain the reasons for the expiration of its initial application, the company was facing increasing regulatory pressure at the time. In February 2023, the New York State Department of Financial Services (NYDFS) ordered Paxos to cease the issuance of the stablecoin BUSD in partnership with Binance due to compliance issues, subjecting the company to strict scrutiny.
As a result of these regulatory reviews, Paxos recently reached a settlement with New York state financial regulators. Due to its failure to adequately enforce anti-money laundering (AML) regulations during its partnership with Binance, Paxos agreed to pay a settlement totaling up to $48.5 million (approximately 1.55 billion New Taiwan Dollars). This amount includes a $26.5 million fine and an additional $22 million allocated to strengthen the company’s internal compliance systems. Paxos officially responded that these issues had occurred years ago and have already been resolved.
Not Just Ripple and Circle! Why Are Stablecoin Giants Competing for “Bank-like” Licenses?
Paxos’ relaunch of its application comes at a critical moment for stablecoin regulatory developments in the U.S. Just weeks ago, the signing of the GENIUS Act established the first federal-level regulatory framework for stablecoin issuers. At the same time, the OCC announced in May of this year that national banks would be allowed to manage, purchase, and sell crypto assets held in custody for their customers.
Under these favorable regulatory developments, Paxos is not the only crypto company seeking a federal license. Stablecoin issuers Circle and Ripple, focused on XRP solutions, have also recently submitted similar banking license applications. The primary reasons these major players are applying are twofold:
Targeting the Institutional Market to Become Top-tier Service Providers
Goal:
Attract large institutional clients (such as investment funds and large enterprises) that have extremely high safety and compliance requirements. Simply put, this is aimed at growing the business larger, more stable, and more profitable.
Adapting to Regulatory Trends to Gain Market Advantage
Goal:
Seize advantageous positions during this critical moment of regulatory clarification to avoid falling behind competitors. By applying now, they aim to ensure they are on the first “compliance train” and start from the same or even a more favorable starting line in the new regulatory era.
In summary, these two strategies can be viewed as “internal” and “external”:
Internally, it’s about upgrading services: providing top-tier service to better clients.
Externally, it’s about strategic positioning: not losing to competitors in the new regulatory environment.