Digital assets are growing more commonplace on the balance sheet of banks in the U.S. Eventually one of these institutions may fail, and the Federal Insurance Deposit Corporation (FDIC) will need to step in to clean things up.

Cue Anchorage, a digital assets custodian, and the first crypto startup to receive a trust charter from the Office of the Comptroller of Currency. According to documents obtained by filing a Freedom of Information Act (FOIA) request, the bank is in the final stages of bidding for a contract with the FDIC to act as a crypto asset management and solution provider.

CoinDesk’s FOIA request sought all crypto custodian-related records from the federal agency. Anchorage is the only company mentioned in the documents, implying no other company is in the running to provide storage and disposal services for the FDIC.

While the document lists an award date of Sept. 8, 2021, a government website tracking agency spending seems to indicate that no contracts were awarded in 2021 or so far in 2022.

The FDIC is a federal banking regulator in the U.S. tasked with providing deposit insurance for national banks. If one of these banks fails, its customers’ deposits are protected by up to $250,000 in insurance per account.

Anchorage declined to comment on the potential contract or how it will provide this service. Decrypt first reported in September that the commission was nearing a deal with Anchorage for these services.

The document is signed by Anchorage CEO Nathan McCauley and FDIC Contracting Officer Kervin Dupart.

Regulatory requirements

According to the FOIA response, the deal would be worth $1.5 million over three years with an option in place to extend it for another two years. The deal would have Anchorage act as a contractor for FDIC-R, the FDIC’s receivership arm, in order to minimize losses for the deposit insurance fund by quickly realizing and liquidating the value of assets in receivership.

Anchorage would also be required to build for the FDIC a “cryptoasset information list” which outlines what assets are being held by an institution, their value and any third-party usage of the asset such as being used as collateral for a loan via a smart contract.

The FDIC does not cover digital assets. Individuals familiar with the agency’s thinking told CoinDesk in October that it had begun studying deposit insurance for stablecoins – specifically, pass-through insurance for stablecoin issuers that hold their dollar reserves in banks.

According to the document, Anchorage will be required to hold digital assets in cold storage, with private keys completely firewalled from local or external networks.

Anchorage will have to report the inventory, cash collections, inventory changes, in-progress settlements, “cryptoassets held for others” and other information to the FDIC every month, as well as additional reports requested on an ad hoc basis.

Anchorage could also be required to convert its digital assets to U.S. dollars or return them to third parties as needed.

21-0287 – Redacted Responsive Document by Sam Reynolds on Scribd

(function() { var scribd = document.createElement(“script”); scribd.type = “text/javascript”; scribd.async = true; scribd.src = “https://www.scribd.com/javascripts/embed_code/inject.js”; var s = document.getElementsByTagName(“script”)[0]; s.parentNode.insertBefore(scribd, s); })();

Offering deposits

Recently, fintech firm Milo announced that it plans to offer mortgages collateralized with bitcoin in the near future. At this point Milo does not have FDIC insurance, though it isn’t required to as it is a nonbank entity. Should this effort on Milo’s part be successful, it’s likely that other banks and institutions would take note and attempt their own offering.

Crypto lender Ledn has signaled that it’s working on a similar product. Another firm, United Wholesale Mortgage, which is the second-largest mortgage lender in the U.S., began offering crypto mortgages in mid-2021 but canceled the initiative in October citing low demand.

While U.S. banks have begun to slowly offer crypto services to their wealthiest clients after the OCC gave them the green light in October 2020, most crypto owned by retail investors is held on exchanges. Crypto lender Figure, an aspiring federal bank, recently modified its application for a national charter to note that it would offer FDIC-insured accounts.

It’s yet to be seen if these exchanges are interested in FDIC insurance, though many have obtained custodian licenses, which include their own form of insurance.

Anchorage and other digital assets banks do not have FDIC insurance on their own deposits.