Bitcoin Custodian and Licensed Private Bank Xapo Bank Partners with Fintech Circle to Integrate USDC, Payment Rail as an alternative to SWIFT. Payment rails refer to the infrastructure and technology used to facilitate the flow of funds between parties to a financial transaction. Payment Rails come in many forms, including traditional bank wires, credit card networks, and blockchain-based platforms.
Xapo Bank said the new feature allows its members to bypass the cumbersome and costly SWIFT payment system through “outrails” added to its existing USDC on-ramp. By using the USDC stablecoin, members can deposit and withdraw from Xapo for free and enjoy a one-to-one exchange rate from USDC to USD. In addition, all USDC deposits are automatically converted into US dollars, and members can earn up to 4.1% annual interest rate return. 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 up to $100,000 in U.S. dollar deposits. In addition, Xapo Bank stated that it does not participate in the pledge of any cryptocurrency deposits, and all deposits are automatically converted into US dollars after the bank receives them. Xapo claims this reduces exposure to any risks associated with volatile crypto markets.
Xapo claims its business model is different from traditional banks because it does not engage in lending activities and does not rely on fractional reserve banking to generate profits. Instead, the private bank keeps all client funds as reserves and invests them in "short-term, highly liquid assets" to pass the interest earned on to clients.
As previously reported by Cointelegraph, Moody’s Investors Service warned that USDC’s decoupling could negatively impact stablecoin adoption and lead to increased regulatory scrutiny. The credit rating agency believes that the recent turmoil in traditional banking and the decoupling of USDC could increase resistance to fiat-backed stablecoins.
The decoupling of USDC came after the sudden collapse of Silicon Valley Bank on March 10. The collapse of SVB is a major risk event for USDC issuer Circle Internet Financial, which has $3.3 billion in assets at the bank.
