Xapo Bank and Circle Partner to Introduce USDC Payment Rails as SWIFT Alternative

Payment rails are the systems and technology used to aid the transfer of funds between parties in a financial transaction

By Shashank Bhardwaj

Published: Mar 23, 2023 03:37:06 PM IST

Updated: Mar 23, 2023 03:42:38 PM IST

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Xapo Bank, a licensed private bank that holds Bitcoin on behalf of customers, has joined forces with Circle, a financial technology company, to incorporate USD Coin payment rails as an alternative to SWIFT.

Payment rails are the systems and technology used to aid the transfer of funds between parties in a financial transaction. They can take various shapes, including standard bank wires, credit card networks, and blockchain-based platforms.

Xapo Bank has announced that it has introduced a new feature that enables its clients to circumvent the time-consuming and costly SWIFT payment system through additional payment channels integrated into its current USDC on-ramps.

With the use of the USDC stablecoin, clients can deposit and withdraw money from Xapo without incurring fees and enjoy a one-to-one exchange rate from USDC to the US dollar. Furthermore, all USDC deposits are automatically converted to the dollar, providing clients with an opportunity to earn an annual interest rate return of upto 4.1 percent.

As per the statement released by Xapo Bank, the bank is a completely licensed and regulated institution and a participant in the Gibraltar Deposit Guarantee Scheme (GDGS), which ensures the safety of depositors' dollar deposits up to $100,000.

Xapo Bank has also confirmed that it does not participate in the staking of any crypto deposits, and that all deposits are by default converted to the US dollar upon being received by the bank. Xapo Bank asserts that this decreases exposure to any potential risks related to the fluctuating crypto markets.

According to Xapo, its operational strategy is different from that of traditional banks, as it does not participate in lending and does not depend on fractional reserve banking to generate profits. Instead, the private bank holds all of the customer funds in reserve and invests the funds in "short-term, highly liquid assets," in order to pass on the interest earned to its customers.

Moody's Investors Service has issued a warning that the depegging of USDC (USD Coin) could potentially have an adverse effect on the adoption of stablecoins and result in heightened regulatory scrutiny. The credit rating agency stated that the recent upheaval in the traditional banking sector and the depegging of USDC may cause a rise in opposition towards fiat-backed stablecoins.

On March 10, Silicon Valley Bank (SVB) experienced an unexpected failure, which led to the depegging of USD Coin (USDC). This event posed a significant risk for Circle Internet Financial, the issuer of USDC, as the company had $3.3 billion in assets invested in SVB.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash