Xapo Bank to enable USDC deposits and withdrawals
Bitcoin custodian and licensed private bank Xapo Bank has partnered with financial technology company Circle to integrate USD Coin (USDC) payment rails as an alternative to SWIFT. Payment rails refer to the infrastructure and technology used to facilitate the movement of funds between parties in a financial transaction. Payment rails come in many forms, including traditional wire transfers, credit card networks, and blockchain-based platforms.
Xapo Bank shared that the new feature allows members to bypass the cumbersome and expensive SWIFT payment system through outrails added to its existing USDC ramps. Using the USDC stablecoin, members can deposit and withdraw money from Xapo without fees and benefit from a one-to-one conversion rate from USDC to US dollars. In addition, all USDC deposits are automatically converted to dollars, allowing members to earn annual interest returns of up to 4.1%.
According to the announcement, Xapo Bank is a fully licensed and regulated bank and a member of the Gibraltar Deposit Guarantee Scheme (GDGS), which protects depositors’ dollar deposits up to $100,000. Additionally, Xapo Bank shared that it does not engage in the betting of any cryptocurrency deposits, and all deposits are automatically converted to dollars upon receipt by the bank. Xapo claims this reduces exposure to any risk associated with the fluctuating crypto markets.
Xapo claims that its business model differs from traditional banks as it does not engage in lending activities and does not rely on fractional reserves of banks to generate profits. Instead, the private bank holds all customer funds in reserve and invests them in “short-term, highly liquid assets” to pass earned interest to customers.
Related: Traditional banks rely on ‘small buffer’: Paris Blockchain Week 2023
As previously reported by Cointelegraph, Moody’s Investors Service warned that the USDC’s depeg, which took place on March 10, could negatively affect the adoption of stablecoins and lead to increased regulatory scrutiny. The credit rating agency argued that the traditional banking sector’s recent turmoil and the pegging of the USDC could increase opposition to fiat-backed stablecoins.
USDC’s depeg occurred after the sudden collapse of Silicon Valley Bank, or SVB, on March 10. The collapse of SVB was a significant risk event for USDC issuer Circle Internet Financial, which had $3.3 billion in assets tied up in the bank.
