Large banks cannot use USDC: a legal dead end for stablecoins
Caitlin Long, founder and CEO of Custodia Bank, pointed out in a recent public speech a fundamental legal issue blocking the integration of stablecoins into the traditional banking system. According to her, the key stumbling block is the lack of a clearly defined property right for assets like USDC.
Long emphasizes that most stablecoins today exist in a "gray" legal zone. In a decentralized environment, this doesn't particularly bother anyone—market participants don't sue each other. But for regulated banks, which must know exactly who owns each asset on their balance sheet, such uncertainty becomes an insurmountable barrier.
The essence of the problem, as Long describes it, lies in blurred property rights. If the legal structure of an asset does not allow a bank to unambiguously identify the owner, then such an asset simply cannot be accepted onto the balance sheet. In her assessment, none of the major crypto companies have previously solved this problem comprehensively.
For comparison, Long cited the example of JPM Coin from JPMorgan—it works, but only within the closed loop of the bank's own clients. USDC, on the other hand, is present on many banking platforms, but major players cannot fully use it precisely because of the lack of a clear legal title.
Custodia's Solution: A Return to the Paper Check
Custodia Bank, according to Long, has found a way out. The company applied the same legal structure for its own electronic token as for a traditional paper bank check. This gives banks a clear and indisputable property right to the stablecoin.
With such a right, banks can confidently issue loans secured by this asset. It is the legal clarity, in Long's view, that opens access to stablecoins for traditional financial institutions. Moreover, Custodia embedded a banking level of operational control directly into the smart contract, bridging regulatory requirements with the capabilities of the public blockchain.
Cryptalist Analyst's Opinion: Caitlin Long's statement is not just criticism, but a precise diagnosis of the "Achilles' heel" of the entire stablecoin industry. Until USDC and its counterparts gain a legal status comparable to traditional financial instruments, mass institutional integration will remain unattainable. Custodia's solution, based on the legal structure of a check, looks elegant and, more importantly, legally valid. This could become the very bridge so needed between DeFi and TradFi.