The Federal Trust Charter Race: Coinbase Joins Circle and Paxos

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Introduction

Welcome to the Tokenized newsletter, brought to you by the creators of the Tokenized Podcast Simon Taylor of Fintech Brainfood, Pet Berisha of Sporting Crypto, and Shwetabh Sameer of Molten Ventures.

We are the newsletter for institutions that need help preparing for a Tokenized future.

We run through the headlines every week, what it means for you and a market readout. Always with an institutional, business-focused perspective. 

Join us every week as we meet your Tokenization needs.

Simon’s Market Readout 💬 

Onchain lending and onchain finance will be one of the most generational opportunities facing financial institutions and fintech companies of the next decade.

Stablecoins are everywhere right now. You can't move for banks talking about tokenized deposits. This week alone, BNY Mellon was discussing tokenized deposits. All of that's exciting because it gives you 24/7 global instant settlement potentially, although there are problems to solve. There's clearly a land grab moment happening.

But here's what most people miss: stablecoins are really a platform. They're the primitive. They're one side of the story. As we always know from banking, the other side of the story is what they enable you to do.

1. Morpho, Onchain Finance, and the Crypto-Rich

Onchain lending today looks different from traditional banking. Protocols like Aave or Morpho or Centrifuge require over-collateralization. Typically a borrower needs 150% of the collateral available in order to borrow.

Now, this doesn't make sense to most bankers today. And it really doesn't have to make sense to most bankers today, because it makes sense for the onchain markets as they exist.

But consider what's already live: Coinbase is integrated with Morpho. At Coinbase, a consumer can be a private credit investor and get 10.6% APY as an investor in that private credit fund.

Alternatively, as a crypto-rich individual, I could park my Bitcoin at something like Morpho and borrow against that for everyday spending. I might need to borrow for a day, a minute, an hour. But it means I don't have to sell my principal. And if the asset continues to rise, or if it's earning yield somewhere else, then typically that can be a really good deal.

2. The Private Credit Parallel

This really looks like an extension of private credit. And that's something banks actually do understand quite well.

We have very large institutional firms like Blackstone and Apollo lending to non-bank lenders such as BNPL providers and fintech companies. Then behind the scenes, the banks are also participating - lending to some of those private credit firms or filling up some of the tranches of private credit.

So when you scratch beneath the surface of private credit, banks have figured out how they play in this ecosystem. I think similarly, they'll figure out how they play in onchain finance.

Some banks are launching their own private credit funds. Some are just participating in it. All of them are enabling it through their payments access and their regulatory licenses they have with central banks.

This will come to onchain too.

3. Stablecoins as the Platform

So if you look at what stablecoins enable today, they do enable that instant 24/7 global settlement. And tokenized deposits enable that for existing corporate clients.

But what about a world in which there's a whole bunch of onchain activity and a whole bunch of borrowing demand that is way more efficient? Well, guess what? It already exists.

But who's going to backstop all of this? Who's going to bring liquidity? Who's going to push this at scale? Who's going to launch the financial products?

Banks are, let's not forget, highly levered organizations. They take deposits and they fractionally reserve against those deposits in order to be able to lend. The same playbook applies here - stablecoins become the deposit layer, onchain lending becomes the asset layer.

We're getting there slowly. There are lots of problems to solve before this is at scale. Don't get lost in the hype, but don't let the fact that it's not going to happen tomorrow get you down either.

This is coming. And it's real.

Stories You Can't Miss 📰

🏛️ Coinbase Applies for Federal Trust Charter to Expand Custody and Payments Infrastructure

Coinbase, the largest US crypto exchange, filed for a National Trust Company Charter with the Office of the Comptroller of the Currency (OCC) on October 3, positioning itself to expand beyond custody into payments and settlement under federal oversight, without becoming a traditional bank.

Key Points:

• Federal regulatory consolidation: The OCC trust charter would streamline oversight and potentially reduce dependence on state-by-state licenses for activities conducted by the trust bank.

• Not a bank charter: Coinbase explicitly stated it has "no intention of becoming a bank" - the trust charter does not permit deposit-taking, lending, or FDIC insurance, but does enable direct custody, payments, and settlement services for digital assets

• Institutional custody expansion: The charter would allow Coinbase to build on its existing $200+ billion in institutional custody assets under custody, adding payment rails and settlement infrastructure without relying on partner banks for fiat on/off ramps

• Growing regulatory pathway: Coinbase joins Circle, Paxos, and Ripple in pursuing OCC trust charters, establishing a standard federal regulatory route for crypto infrastructure firms seeking institutional credibility and operational efficiency

• Continued state oversight during review: Coinbase Custody Trust Company (CCTC) will continue operating under New York Department of Financial Services (NYDFS) oversight throughout the OCC application review process, maintaining existing BitLicense compliance

The Tokenized Take:

Federal regulatory clarity is the institutional unlock. State-by-state licensing has been the operational bottleneck preventing crypto infrastructure from scaling efficiently. While a national trust charter eliminates that friction, doesn’t magically erase all state touchpoints, but it concentrates primary oversight, clarifies the rule-set, and can accelerate product rollout across jurisdictions This will allow Coinbase to introduce payment and settlement products across all 50 states more seamlessly.

The "not a bank" positioning is strategically brilliant. Traditional bank charters come with capital requirements, deposit insurance, and lending restrictions that would slow product velocity. By pursuing a trust charter, Coinbase gets federal oversight credibility without the operational burden. This will create regulatory arbitrage with all the institutional trust of federal supervision and the agility of a non-bank fintech.

Custody + Payments = Institutional infrastructure stack.

A charter could let Coinbase embed payments and settlement capabilities nearer to custody, tightening operational control and service levels. This can be particularly  useful for institutional clients moving large volumes between digital assets, stablecoins, and tokenized securities. Think instant settlement of tokenized treasury operations or 24/7 stablecoin-to-stablecoin conversions.

That said, fiat on/off-ramps will still involve banks unless Coinbase obtains additional permissions or arrangements.

This establishes the regulatory template for crypto infrastructure firms. Circle and Paxos already hold OCC trust charters. Ripple is pursuing one. Approval isn’t guaranteed and industry groups have urged the OCC to scrutinize these charters. However, if Coinbase's application succeeds, it validates a federal pathway for crypto infrastructure providers to operate with bank-grade regulatory oversight without becoming traditional banks. Within 24-36 months, we could see a tier of federally-chartered digital asset infrastructure firms serving as custody and settlement layers for institutional adoption - sitting between traditional banks (which handle fiat) and blockchain protocols (which handle onchain settlement).

🚀 Galaxy Digital Launches GalaxyOne Retail Platform to Rival Robinhood and Coinbase

Galaxy Digital, the Nasdaq-listed institutional crypto firm, launched GalaxyOne on October 6 - a unified consumer platform combining high-yield cash accounts (4-8% APY), crypto trading, and commission-free stock brokerage.

Key Points:

• Institutional-grade yields for retail investors: GalaxyOne offers 4% APY on FDIC-insured cash deposits (up to $250,000 via Cross River Bank) and 8% APY on Galaxy Premium Yield notes for accredited investors, powered by Galaxy's $1.1 billion institutional lending desk.

• Multi-asset platform competing with Robinhood: The platform enables users to trade major cryptocurrencies (BTC, ETH, SOL), U.S. equities, and ETFs alongside high-yield cash management in a single app. This directly challenges Robinhood, Coinbase,and Cash App in the retail investment space

• Led by Zac Prince (ex BlockFi): Galaxy hired Zac Prince, co-founder and former CEO of collapsed crypto lender BlockFi, to spearhead the retail platform with a "much more conservative" risk management approach featuring a quadrupled risk team and institutional-grade oversight

• Stock market reaction: Galaxy Digital (GLXY) shares jumped 7-10% to ~$39 on the announcement

• Roadmap includes staking and business accounts: Future features include Solana staking, business accounts and additional brokerage and lending products, expanding beyond the initial cash-crypto-equities offering

The Tokenized Take:

This is institutional infrastructure moving downstream (but with clearer guardrails than the 2021 cycle). Galaxy isn't building a retail platform from scratch - it's repackaging its $1.1 billion institutional lending desk for individual investors. That 8% APY isn't a promotional gimmick; it's Galaxy's actual institutional lending spread being passed to accredited retail clients. Some folks might remember this to be similar to what happened in traditional finance when institutional money market funds became available to retail investors in the 1970s-80s. The difference here is the unified rails: crypto, equities, and cash settlement in one platform rather than across fragmented providers.

The Zac Prince hire is both strategic and risky. Prince brings deep retail crypto experience and product expertise from BlockFi, which at its peak managed $15 billion in assets. However, BlockFi's collapse following risky lending practices and a $100 million SEC settlement creates obvious reputational concerns. Galaxy's response, which is quadrupling the risk team and emphasizing "conservative" lending, signals they're attempting to capture BlockFi's product-market fit while avoiding its risk management failures. The institutional backing of a Nasdaq-listed public company provides credibility that BlockFi lacked, but execution will determine whether this is redemption or repeat.

The competitive positioning targets a gap in the market. Robinhood offers stocks and crypto but limited yield. Coinbase offers crypto and some staking but weak fiat yield. Traditional banks offer FDIC-insured deposits but minimal returns. GalaxyOne combines all three with institutional-grade yields backed by actual lending operations rather than venture capital subsidies. That value proposition resonates in a post-zero-rate environment where investors demand both asset diversification and competitive yield.

 The question is whether retail investors trust a crypto-native platform with their cash deposits, even with FDIC insurance.

This validates the convergence thesis. When institutional crypto firms start competing directly with Robinhood for retail investors, it signals that the boundaries between crypto and traditional finance are dissolving. Within 12-24 months, expect more brokers will add institutional-style yield notes and stablecoin rails to avoid deposit outflows.

The winners will be platforms that combine regulatory compliance, competitive yields, and seamless user experience across asset classes. Galaxy is betting its institutional infrastructure gives it an edge in that race.

💸 TerraPay Launches Stablecoin-Native Cross-Border Payment Flows with Fipto

TerraPay, a global cross-border payments network serving across 150+ countries, announced on October 6 the launch of stablecoin-native payment flows in partnership with Fipto, a regulated blockchain infrastructure provider. This marks a significant shift from pilot testing to production deployment of blockchain settlement rails.

Key Points:

• Infrastructure for the infrastructure: TerraPay isn't a consumer-facing app - it's the pipes behind the pipes, providing cross-border payment rails for financial institutions globally, making this adoption a potential catalyst for widespread stablecoin integration across its network

• One-year pilot validates operational gains: TerraPay spent the past year testing "stablecoin sandwiches" (fiat → stablecoin → fiat on the cross-border leg), benchmarking settlement times and FX pricing against SWIFT and card networks, with results showing faster settlement, lower working capital requirements, and better FX pricing

• Native stablecoin flows now live: Clients can now fund transfers directly in stablecoins and payout partners can receive them without conversion (where regulators permit). This will eliminate the sandwich conversion step entirely in supported corridors

• Regulated infrastructure-as-a-service model: Fipto provides institutional-grade regulated stablecoin payment infrastructure (Payment Institution license with France's ACPR, DASP registration with AMF, VASP registration with Luxembourg's CSSF), compliance frameworks, liquidity management, and multi-chain support. This enables TerraPay to integrate stablecoins without building infrastructure in-house

• Network effects amplify adoption: TerraPay's Head of Treasury Sanjeev Gupta noted that "even if adoption starts small, every new corridor or partner amplifies the efficiency gains across our global network," creating a path of least resistance for clients to adopt stablecoin settlement

The Tokenized Take:

This validates the treasury infrastructure thesis for stablecoins. TerraPay isn't a crypto company experimenting with blockchain. It's a traditional cross-border payments network serving banks and fintechs across 150+ countries, adopting stablecoin rails because it optimizes treasury economics. When infrastructure providers add stablecoin settlement, every client on their network gains access without building it themselves. One PSP opting in makes it easier for the next. One corridor going native makes adjacent corridors will more likely follow. This is the network effect that can flip payment rails from alternative to default.

The nostro account model is being challenged. Most payment service providers lock up millions in nostro accounts - capital sitting idle in 40+ different currencies, pre-positioned for "just in case" liquidity needs. Stablecoins collapse that model. Instead of "where do we need capital next week?" it becomes "route this payment right now as a stablecoin." For corporate treasurers managing cross-border operations, the working capital efficiency is material: convert static prefunding into dynamic liquidity that moves at the speed of settlement demand. TerraPay's one-year pilot proving faster settlement, lower working capital requirements, and better FX pricing validates that the economics work at institutional scale.

Exotic corridors flip first, then the model follows corridor by corridor. Stablecoin adoption won't happen uniformly. It starts in corridors where traditional rails are expensive or slow (emerging markets with limited correspondent banking relationships), then expands to our corridors as operational benefits become clear. TerraPay's partnership with Fipto provides the regulated infrastructure layer (custody, compliance, and conversion) that removes barriers for traditional financial institutions hesitant to build blockchain capabilities internally.

The question becomes: how many corridors need to go native before the nostro account era ends? TerraPay just moved that timeline forward.

🏛️ EU Moves Toward Centralized Crypto Supervision Under ESMA, Challenging Fragmented National Oversight

The European Commission is preparing reforms to shift supervision of crypto firms from national regulators to the European Securities and Markets Authority (ESMA). This is the reversal of the decentralized structure established in 2024.

Key Points:

• How it works today: MiCA designates national authorities (AMF, BaFin, MFSA, etc.) to license and supervise crypto-asset service providers (CASPs) across the 27 EU member states. Firms can passport services EU-wide once authorized by any single country, creating a single market with fragmented oversight

• Why the push for change: ESMA's July 2025 peer review flagged significant gaps in Malta's CASP authorization process, while France, Italy, and Austria publicly urged stronger EU-level oversight. This asked for direct ESMA supervision for systemically important CASPs

• Opposition from smaller financial hubs: Malta has publicly opposed centralization, citing concerns about bureaucracy and competitiveness. Luxembourg is also reported as skeptical, fearing loss of regulatory autonomy and business

• Implementation timeline: Existing national licenses will continue under MiCA's transitional provisions through July 1, 2026. Any transfer of authority to ESMA would phase in gradually over multiple years, beginning with ESMA's expanded oversight of equity and bond data systems and ESG ratings in 2026

The Tokenized Take:

MiCA delivered a common rulebook, but supervision remained national. And that's where cracks started showing. Fragmented oversight meant inconsistent enforcement, regulatory arbitrage, and investor protection gaps. This was highlighted when ESMA criticized Malta's licensing process during the peer review. Centralization aims to address these inefficiencies and create a more unified, competitive EU crypto market. But this transition can create near-term uncertainty precisely when the US is gaining competitive advantage through regulatory clarity.

The competitive dynamics with the US matter more than European policymakers acknowledge. The GENIUS Act, signed in July 2025, established a clear federal framework for stablecoins and digital assets. This will drive institutional adoption, capital inflows, and a hiring surge as crypto firms "re-shore" talent to the US. Meanwhile, European CASPs will have to navigate fragmented national supervision with unclear timelines for centralization. And this can translate directly into institutional hesitation where corporate treasurers and asset managers may prefer US-regulated counterparties over European ones.

For European CASPs, this creates a strategic dilemma. Existing national licenses will continue, but firms face uncertainty about whether ESMA will impose stricter centralized requirements over time. Institutions must monitor whether their counterparties' current licenses will remain sufficient or require enhancement under future ESMA oversight.  Political opposition from Malta and Luxembourg suggests there will be a compromise. But the timeline can have a huge impact in a fast-moving market where US competitors operate under stable federal oversight.

The likely outcome could mirror EU banking supervision: a two-tiered model where ESMA oversees systemically important firms while national authorities retain smaller CASPs. That addresses systemic risk without fully removing fragmentation. But this leaves European crypto markets structurally disadvantaged vs the US federal model. For institutions evaluating European market entry, the strategy should be: prioritize jurisdictions with strong supervisory track records (France, Germany, Netherlands) to minimize re-licensing risk. The question is – whether enough European CASPs can survive the transition costs and competitive pressure from US peers – or whether this uncertainty can fuel capital and talent migration across the Atlantic.

📰 Some More News:

🏦 Tokenization, Stablecoins & Finance

• Walmart-backed fintech OnePay plans to add cryptocurrency trading and custody features to its app (read more here)

• PLUME Rises 25% as Network Registered by SEC as Transfer Agent for Tokenized Securities (read more here)

• Brazil's $318B Crypto Boom: How Stablecoins Quietly Forged Latin America's #1 Market (read more here)

• SoFi Doubles Down on Crypto Plans, Reveals Stablecoin Details (read more here)

• Building Inside Legacy Systems Helps CFOs Capture New Payments Value (read more here)

• FG Nexus brings tokenized stock trading to Ethereum (read more here)

• CME Group eyes 24/7 crypto derivatives trading expansion (read more here)

• How Coinbase Profits on Bitcoin-Backed Loans as a Technology Provider (read more here)

• Grayscale launches staking for Ethereum and Solana ETPs in US first (read more here)

• Morgan Stanley's new investment guidance could channel up to $80B into Bitcoin (read more here)

• Bitcoin, Ethereum, Solana ETFs Surge as Crypto Funds Pull in Record $5.95 Billion (read more here)

• US Spot Bitcoin ETFs Enjoy Second-Highest Weekly Inflows To Date (read more here)

• PancakeSwap DEX rolls out CakePad to offer early access to new token listings (read more here)

• Tom Lee's BitMine Boosts Ethereum Treasury Holdings to $13 Billion (read more here)

🤑 Funding and M&A

• ARK Invest Acquires $10M Stake in Tokenization Firm Securitize (read more here)

• Uniswap Labs acquires Guidestar to advance AMM and routing research (read more here)

• Hivemapper raises $32M, launches new subscription for Bee dashcams (read more here)

• Bee Maps Raises $32M to Scale Solana-Powered Decentralized Mapping Network (read more here)

• Ondo Finance finalizes Oasis Pro acquisition to expand US tokenized securities platform (read more here)

• Leap Therapeutics Shares Jump on $59M Winklevoss-Led Crypto Deal (read more here)

• China Financial Leasing to Raise $11M for Crypto and AI Investment Platform (read more here)

• Avalanche Treasury Co. Plans $675 Million Merger With Mountain Lake Acquisition (read more here)

💼 Government & Policy

• Capitol Gains: Shutdown blues slow crypto work (read more here)

• EU Risk Watchdog Sounds Alarm on Stablecoin Safeguards (read more here)

• Russian Central Bank to Launch Large-scale Audit of Nation's Crypto Holdings (read more here)

• What Next for the UK's $7 Billion in Seized Bitcoin? (read more here)

• The Turf War Is Over For Crypto, CFTC Commissioner Caroline Pham Says (read more here)

Tweet of the Week 🐤 

From Bloomberg

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