Letter gives green light to bank usage of stablecoins, ‘INVNs,’ for conducting payment activities

Stablecoins may be used to conduct payment activities and other bank-permissible functions by national banks and federal savings associations, their federal regulator said in a letter issued Monday.

The letter, issued by the Office of the Comptroller of the Currency (OCC), also cleared the way for the banks to participate in so-called “independent node verification networks” (INVNs), or independent nodes for networks of distributed ledgers.

According to the OCC, the letter is aimed at removing legal uncertainty about the authority of banks to connect to blockchains as validator nodes. That, in turn, allows institutions to transact stablecoin payments on behalf of customers, which the OCC said are “increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products.”

“Stablecoins” are typically defined as digital currencies that aim to maintain stable value by tying the digital currency to an asset or basket of assets, such as commercial bank deposits or government-issued bonds. The proposed “Libra” digital currency is an example. However, Bitcoin is not.

The letter also concludes, the OCC said, that a bank may validate, store, and record payments transactions by serving as a node on an INVN. Likewise, it said, a bank may use INVNs and related stablecoins to carry out other permissible payment activities – as long as they are compliant with the law and safety and soundness.

“Engaging in INVN within the federal banking system may enhance the efficiency, effectiveness, and stability of payments activities and achieve the benefits of real-time payments already enjoyed in other countries,” the OCC said.

As an example, the agency asserted that such activities may be more resilient than other payment networks because of the decentralized nature of INVNs, which the OCC said allows a comparatively large number of nodes to verify transactions in a trusted manner. “An INVN also limits tampering or adding inaccurate information to the database because information is only added to the network after consensus is reached among the nodes validating the information,” the agency said.

However, the OCC also pointed out that there operational, compliance, and fraud risks related to the networks, stablecoins, and cryptocurrency generally. “Banks should develop and implement new activities consistently with sound risk management practices and should align with banks’ overall business plans and strategies,” the agency said.

Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and Use Stablecoins for Payment Activities