Stablecoin custody: tokens and reserves

A firm that holds stablecoins for clients in the EU provides custody and administration of crypto-assets under Article 75 of MiCA. It signs an agreement with each client that sets out duties, responsibilities and its custody policy, keeps internal rules that limit the risk of loss through fraud, cyber threats or negligence, and returns client assets promptly. The crypto custody in Germany page covers the German side.

For e-money tokens a second license can apply. A firm that holds or transfers them for clients may need a payment services license next to its MiCA authorization; the Munich custodian Tangany holds one for this business, as the e-money tokens page explains.

The money behind an e-money token is invested under Article 54 of MiCA: at least 30 percent in separate accounts at credit institutions, the rest in highly liquid instruments in the same currency. Those accounts and securities need a custodian. BNY is the primary reserve custodian of Ripple's RLUSD and runs the transaction banking that moves reserve cash for conversions.

Where the reserve sits is a risk in itself. When Silicon Valley Bank failed, part of the USDC reserve was stuck there; the stablecoin risks page tells the story. Providers of stablecoin as a service such as BitGo reconcile reserve assets daily and offer proof of reserve.

Custodians protect keys with hardware security modules or multi-party computation, approval workflows and role-based access, as Stripe describes. A company that holds stablecoins itself saves the custody fee but carries the risk of a lost key or a weak approval process. A proof of reserve shows holders what backs the token, and the page on it explains what such a proof leaves out.

Finance Loop is the meeting place for custody, operations and treasury people at banks and fintechs. The Crypto Assets Conference in Frankfurt, which Finance Loop has partnered with, covers custody next to tokenization and market infrastructure. AllUnity, issuer of the euro stablecoin EURAU, hosts Capital & Code with Finance Loop as media partner.

Either the safekeeping of stablecoins for clients by a licensed custodian, or the safekeeping of the reserve assets that back a stablecoin by a bank. The first falls under MiCA, the second under banking law and the issuer's reserve rules.

Banks and custodians chosen by the issuer. Under MiCA at least 30 percent of the funds for an e-money token sit in separate bank accounts; BNY, for example, is the primary reserve custodian of RLUSD.

Yes. Holding crypto-assets for clients is a crypto-asset service under MiCA, authorized by BaFin in Germany, and holding e-money tokens can also require a payment services license.