Paxos Seeks National Charter to Enhance Regulatory Oversight and Operations

Paxos Trust Company, the blockchain infrastructure firm behind PayPal's stablecoin PYUSD, has applied to the U.S. Office of the Comptroller of the Currency (OCC) to convert its New York state trust charter into a national trust bank charter. This move aims to enhance its regulatory framework and operational capabilities under federal oversight.

This application marks Paxos's second attempt to secure a national trust bank charter, following a previous effort that expired in 2023. The initiative aligns with a broader trend of cryptocurrency firms seeking closer integration with the traditional financial system, despite facing regulatory challenges.

Founded in 2012, Paxos specializes in blockchain infrastructure and offers services such as cryptocurrency custody, trading, and settlement solutions. Notably, Paxos issues PayPal's stablecoin, PYUSD, which has a market capitalization exceeding $1 billion.

If approved, the national charter would allow Paxos to manage and hold assets on behalf of customers and settle payments more efficiently. However, unlike traditional banks, this license would not permit Paxos to accept cash deposits or issue loans. The transition from a state-limited trust charter to a federal charter would provide Paxos with stronger regulatory oversight.

This application marks Paxos's second attempt to secure a national trust bank charter. The company previously received preliminary conditional approval from the OCC in 2021, but the application expired in 2023.

Paxos's initiative aligns with a broader trend in the cryptocurrency industry, with other firms like Circle and Ripple also seeking national trust bank charters to integrate more closely with the traditional financial system. Currently, Anchorage Digital is the only crypto platform with such a charter.

Paxos has previously faced regulatory challenges, including a $48.5 million settlement with New York authorities over compliance failures related to its former partnership with Binance. The New York Department of Financial Services (NYDFS) found that Paxos failed to conduct sufficient due diligence on Binance and had systemic deficiencies in its anti-money laundering program. As part of the settlement, Paxos agreed to pay a $26.5 million fine and invest $22 million to enhance its compliance infrastructure.

This development follows the recent enactment of a new law regulating stablecoins, signed by President Trump, reflecting the increasing mainstream integration of digital assets.

The pursuit of a national trust bank charter by Paxos and other cryptocurrency firms signifies a shift towards greater regulatory compliance and integration with the traditional financial system. This move could enhance consumer trust and facilitate broader adoption of digital assets. However, it also underscores the challenges that crypto companies face in navigating complex regulatory landscapes.

By applying for a national trust bank charter, Paxos aims to reinforce its commitment to maintaining the highest global standards for safety and transparency. Upon approval, Paxos would be regulated by the OCC in the United States, alongside existing oversight from FIN-FSA in Europe, MAS in Singapore, and FSRA in the Abu Dhabi Global Market.

The outcome of Paxos's application will be closely monitored by stakeholders, as it may shape the future regulatory trajectory of the stablecoin industry.