American banks seeking to offer customers services built on public blockchain networks appear to have been discouraged from doing so by the Federal Deposit Insurance Corporation, documents released Friday revealed.
The disclosure came courtesy of a trove of newly unredacted crypto-related correspondences between the FDIC and member banks. San Francisco-based cryptocurrency exchange Coinbase obtained the documents via the Freedom of Information Act, or FOIA. Last month, Coinbase secured heavily redacted versions of 23 such letters.
Thanks to a court order, the contents of those letters—and two new ones—were revealed today in their (near) entirety.
One of those letters, sent in March 2022 from the FDIC’s New York office to a member bank, detailed how the federal agency had learned that the bank planned to roll out a “Bank Digital Deposit” program built to run on a public blockchain. The name of that public blockchain remains redacted.
In the letter, the FDIC appears to take issue with the bank opting to use a public blockchain instead of a private, permissioned network. Blockchains like Ethereum and Solana are decentralized and permissionless, meaning that activity on them is fully public and cannot be overridden by third-party human administrators. By contrast, private blockchain networks, like those used by nation states to issue central bank digital currencies, place limits on who can use them and for what purpose.
The FDIC is apparently not a fan of member banks launching products on anything-goes, fully transparent networks. The regulator instructed the New York bank in the March 2022 letter to submit to a new, detailed review process before launching any products on public blockchains.
Other letters disclosed Friday show the FDIC ordering member banks to halt the implementation of services related to the buying and selling of Bitcoin. Sections of the same letters unredacted last month showed the FDIC instructing member banks to “pause all crypto asset-related activity.”
Coinbase Chief Legal Officer Paul Grewal touted today’s revelations as further proof of an alleged Biden administration initiative waged against the crypto industry via banking regulations that’s become known as “Operation Chokepoint 2.0” (borrowing the name from the Obama era scheme that targeted firearms dealers and payday lenders).
“They show a coordinated effort to stop a wide variety of crypto activity,” Grewal said on X (formerly Twitter) of Friday’s FDIC letters.
