Ahead of its plans to go public via a special-purpose acquisition company, Circle Internet Financial Inc. has announced its intention to become a fully registered bank.

Under the proposal, Circle will become a full-reserve commercial bank registered with the U.S. Federal Reserve, U.S. Treasury, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. However, wanting to become a bank and actually achieving that outcome is not a simple process, as Chief Executive Officer Jeremy Allaire (pictured) explained in a blog post Aug. 9.

The first challenge is that Circle is a cryptocurrency exchange and blockchain services provider that’s perhaps best best known for the USDC stable coin. There’s no precedent for a company with a stable coin to become a fully registered bank.

Circle intends to start the process alongside the efforts of top financial regulators who are working with the President’s Working Group on Financial Markets to better manage risks and opportunities posed by stable coins, described alternatively as “dollar-linked digital currencies.”

“In the coming years, we anticipate that USDC will grow into hundreds of billions of dollars in circulation… and become widely used in financial services and internet commerce applications,” Allaire explained. “Establishing national regulatory standards for dollar digital currencies is crucial to enabling the potential of digital currencies in the real economy, including standards for reserve management and composition.”

Liquidity is one factor that has to be considered, such as liquidity in times of intense demand to redeem USDC. Allaire argues that while Circle has been transparent and has consistently and voluntarily published third-party attestations as to the sufficiency of USDC reserves, more will be required.

As such, Circle will further embrace higher standards of liquidity. One of them is Basel III, a method that defines the Liquidity Coverage Ratio as the amount of High-Quality Liquid Assets on a bank’s balance sheet divided by the expected net outflows in a 30-day stress case. Basel III mandates that banks maintain their LCR above 100%.

“As we move towards national bank-level regulatory supervision, we will begin to publish information about the fundamental liquidity of USDC and our liquidity coverage under Basel III,” Allaire noted.

While the process to obtain a banking license may be a long road ahead for Circle, if it manages to do so it would change the broader market. As Axios pointed out, if Circle obtained a banking license as an issuer of cryptocurrency backed by the Fed, “then presumably other banks would be, too, and they would rapidly start competing with each other to pass through most or all of the interest that the Fed pays on reserves.”

Photo: World Economic Forum/Flickr