U.S. Bank Tests Stablecoin Issuance, Viewing Blockchain as ‘Alternative Payment Rail’

U.S. Bank is testing custom stablecoin issuance on the Stellar blockchain network.

The bank is collaborating on this project with the Stellar Development Foundation (SDF) and PwC, the organizations said in a Tuesday (Nov. 25) blog post.

“It’s another way to move money on a blockchain, and we look at blockchain as an alternative payment rail, and we’re very interested to see what use cases are going to manifest from that and what customers are most interested in,” Mike Villano, senior vice president, head of digital asset products at U.S. Bank, said in a video included with the post.

Villano said in the post that Stellar has protections that are needed for a project like this.

“For bank customers, we have to think about other protections around know your customers, the ability to unwind transactions, the ability to claw back transactions, and one of the great things about the Stellar platform as we did some more research and development on it was learning that they have the ability at their base operating layer to freeze assets and unwind transactions,” Villano said.

Stellar was designed to meet the needs of regulated institutions with things like 99.99% uptime over a decade, billions in annual payment volume, built-in asset controls and 3- to 5-second settlement, according to the post.

“When you are doing mission critical systems, when you are doing financial services, and you are moving customers’ money, you need to make sure that your blockchain is going to be there,” José Fernández da Ponte, president and chief growth officer at SDF, said in the post. “So we are very honored to have the confidence of U.S. Bank and our partners at PwC.”

U.S. Bancorp CEO Gunjan Kedia said in October that the bank was looking to pilot stablecoin transactions this year through partnerships.

When it comes to stablecoins as a payment rail, the bank’s efforts are twofold, Kedia said.

“One is to just be ready to onboard and offboard a stablecoin into the banking system, and we are working on that in conjunction with the industry consortiums,” Kedia said Oct. 16 during an earnings call. “And then the second is just being ready to provide stablecoin services as a payment vehicle should that market take off within our client base.”

A day earlier, on Oct. 15, U.S. Bank announced that it had established an organization that will focus on emerging digital products and services like stablecoin issuance, cryptocurrency custody, asset tokenization and digital money movement.

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