Citi Expands Digital-Assets Footprint With Coinbase Partnership — WSJ

By Vicky Ge HuangCitigroup has tapped crypto company Coinbase Global to help the bank's big clients take stablecoin payments from customers.It is the latest sign that efforts to connect traditional banking and the alternative financial system that powers cryptocurrencies are pushing ahead despite a recent setback for the crypto industry in Washington.Cryptocurrencies such as bitcoin haven't become widely used in day-to-day payments. But consumer and business payments are a potential growth area for stablecoins that are designed to digitally represent traditional currencies like the U.S. dollar.Citi's institutional clients, including large multinational corporations, will be able to accept stablecoin payments from their customers at checkout through Citi's merchant-processing services.Coinbase will supply the stablecoin payment rails and underlying blockchain technology that automatically converts the digital currency into government-issued currency, and Citi will settle the funds as the bank of record.Coinbase is working with both its individual and institutional clients to get them to use crypto more for payments.With this partnership, its payments customers will now be able to use Citi's banking capabilities to accept, hold and pay funds in a bank-account-like vehicle where incoming cash is automatically converted into stablecoins, which are digital tokens pegged to the U.S. dollar. The stablecoins will be held at Coinbase and earn an interest-like reward, currently an annual rate of 3.75%.Shahmir Khaliq, head of services at Citi, said this partnership is aimed at connecting digital assets to parts of the economy that rely on government-issued currency today. "This is really part and parcel of completing that jigsaw puzzle," he said.Separately, Citi said it is also now expanding its token services, which uses the bank's own blockchain to enable multinationals to move their own money across the bank's network instantly and around the clock. It will now also be available in Japan and the United Arab Emirates. The program is now live in seven jurisdictions, including the U.S.Banks have been working for years to test and adopt blockchains, the digital ledger technology that powers cryptocurrencies.Some of these efforts are finally coming to fruition. Citi, JPMorgan Chase and other banks plan to launch a tokenized deposit system next year. Citi is among a group of nearly two dozen firms teaming up to launch a stablecoin. The bank has also established a venture that lets its wealthy and institutional clients trade shares of private companies through a blockchain.Citi's partnership with Coinbase comes after a piece of crypto legislation known as the Clarity Act recently failed to advance in the Senate."We are not hampered," said Citi's Khaliq. "We're continuing to do what we do within the banking license we have, within the regulations we currently have."Proponents argued that the landmark measure would have accelerated the adoption of digital assets among Wall Street banks and asset managers. Part of what derailed the bill was a dispute between the banking lobby and crypto companies over whether crypto platforms can offer interest-like rewards to stablecoin holders.The collaboration between Citi and Coinbase is aimed at enabling consumers and businesses to seamlessly switch between dollars and stablecoins without leaving the traditional banking system, said Brett Tejpaul, head of Coinbase Institutional.The partnership also helps realize "the full potential of stablecoins" to enable "faster, cheaper, better" payments across international boundaries, Tejpaul said.Write to Vicky Ge Huang at [email protected]