A legal dead end for stablecoins: why banks cannot work with USDC — an expert analysis
Major banks are facing an unexpected obstacle in integrating stablecoins like USDC. The problem lies not in technology, but in fundamental legal uncertainty. Custodia Bank CEO Caitlin Long pointed out a key barrier in a recent interview: the lack of clear ownership rights for the digital asset.
According to Long, traditional stablecoins exist in a "gray" legal zone. In the DeFi world, this doesn't bother anyone, but for regulated financial institutions like banks, ambiguous ownership rights are a critical issue. Without a clear legal title, a bank cannot use such an asset in its operations—neither for lending nor for collateral transactions.
What is the essence of the legal problem
Long explained that it is precisely the unclear legal status that prevents major players from fully working with USDC. As a contrast, she cited JPMorgan's JPM Coin—a token that functions exclusively within the bank's own ecosystem. USDC, on the other hand, is present on banking platforms, but its use is limited due to the lack of legally established ownership rights.
This is not just a technical detail. For a bank, owning an asset without a clear legal title is an unacceptable risk. According to Long, none of the major crypto companies have previously taken on the task of solving this fundamental issue.
Custodia's solution: back to basics
Custodia Bank found a way out by applying the same legal framework for its electronic token as for a paper bank check. According to Long, this gives banks confidence that they are receiving clear and indisputable ownership rights to the stablecoin.
With such a title, banks can confidently issue loans secured by this asset. It is legal clarity, not transaction speed, that opens the door for traditional finance to access stablecoins.
Moreover, Custodia embedded a banking level of operational control directly into the smart contract. Thus, the company combined the strict requirements of regulated financial institutions with the capabilities of a public blockchain, creating a hybrid that could serve as a bridge between the two worlds.
Expert opinion: This story is a vivid example that the main brake on institutional adoption of cryptocurrencies is not technology, but law. Custodia's solution essentially reinvents the legal framework for digital assets, making them compatible with the millennia-old principles of banking. If this approach gains traction, we will see a real influx of capital from major banks, which have so far remained on the sidelines due to regulatory risks.