Anchorage Digital’s Diogo Monica on keeping up with regulations and linking FIs to digital assets

Running with the vision that every business will one day be a crypto business, Anchorage Digital is launching Build with Anchorage – a new full-stack crypto infrastructure offering – to link every business to crypto. 

Given the recent rise of FIs' interest in crypto custody, Tearsheet decided to catch up with Diogo Monica, the co-founder and president of Anchorage. We discussed how the company is keeping up with regulations, why more FIs are offering crypto services, and what the firm’s new Build with Anchorage offering has in store for the future.  

Keeping up with the OCC

“We are the first and still the only federally chartered crypto bank. There's nothing in the US that has higher regulatory clarity and oversight than being a bank. And rightly so, because it's people's money and it requires oversight,” says Diogo Monica.  

Monica reckons outside of monitoring nuclear launch codes, running a banking institution in the US is literally the most regulated activity. Anchorage is registered with the OCC and is part of the American Bankers Association (ABA). As a first mover, the company has had its fair share of challenges, including a near-clash with the OCC. 

To begin with, their registration process was slightly different. The company did a charter conversion from a Trust Charter to get their federal charter. Anchorage operated as a Trust Company for several years before applying for conversion to a federal charter.

Having run as a trust, the regulators could easily identify their policies, procedures, and technologies as they were already up and running. They had an easier time evaluating the risk trade-offs and how the company was operating. Monica credits that as the main reason why Anchorage got approved first and why it is still the only regulated crypto firm. 

While having a federal charter is beneficial, being the only regulated crypto company means that Anchorage operates under constant scrutiny and must spend a considerable amount of resources to remain compliant. 

“We are the first one doing a crypto business, so if the OCC has a question about crypto, guess who they're gonna ask? It also means that there's a lot of costs that we incur in compliance and legal fees,” says Monica. 

Why are FIs offering crypto services?  

‘Not your keys, not your crypto’ is a popular expression amongst the crypto community, popularized by Bitcoin advocate Andreas Antonopoulos. It encapsulates the concept of self-custody and the Bitcoin blockchain's ability to allow users to take complete control of their digital assets – essentially allowing people to become their own banks.

According to Monica, "self-custody is extremely important." However, that does not mean that all of your assets should be in self-custody. Taking self-custody of bitcoins, a method referred to as cold storage, involves storing your private keys offline. Popular methods of cold storage include writing your private key down on a piece of paper or storing it on a USB hard drive for safekeeping. 

Monica refers to this storage method as ‘pirate custody.’ It resembles the 1500s, when pirates used to store their gold coins in treasure chests buried in a secret location. In the same way, crypto advocates promote storing your private keys on a ‘paper wallet’ or USB ledger and keeping it in a safe. Perish the thought your house burns down, and you lose your home and your life savings. Or take James Howell, for example, who accidentally chucked away an old hard drive containing 8000 bitcoins. 

Seeing the pitfalls of self-custody, who better than the most regulated entities on planet earth, US financial institutions, could be entrusted with such a responsibility? Armed with a PhD in Computer Science, Monica partnered with a security engineer and former colleague at Square, Nathan McCauley, to launch Anchorage. 

Anchorage was initially launched in 2017 as a platform for institutions to access crypto custody services. The company has since built other crypto services on its platform at the request of its top-tier clients, which include US financial institutions. Their latest offering, ‘Building with Anchorage,’ which offers a full stack crypto infrastructure, is a crystallization of what the company has been building for the past five years. 

Building with Anchorage and beyond

“Full stack offering means that we have all of the services that allow payment gateways, financial products, and market participants to really build anything. And we call it an infrastructure because we have these available as APIs,” says Monica. 

Big banks and corporations like Visa are already using Anchorage APIs to build new products from a regulatory stack that Anchorage supports. In developing the blockchain API stacks for their partners, the company has even unlocked new use cases that stablecoins and blockchain technology are making possible.

“Imagine that you are a ride-hailing company driver, and as soon as you finish a ride, money is available instantly. And you can pull out your Visa card and use those $20 or $40 at a restaurant, right after you park your car,” says Monica. 

Through its Build with Anchorage project, the company seeks to make these blockchain technology stacks available to more institutions and businesses. After all, if every tech company is seeking to be a fintech company, and every fintech company is entering the crypto space, it makes logical sense that all businesses will one day be crypto businesses.