Is the crypto world now sitting down at the same table as traditional finance?

Original author: Mankiw Brand Department

Editor's Note:

Against the backdrop of a sluggish market, this issue of Little Bar focuses on three key signals:

• Circle obtains a U.S. banking license
• Visa announces support for USDC settlement.
• The SEC has changed its approach and is now focusing on educating crypto users.

This is not the crypto world being "co-opted" by traditional finance, but rather a proactive and profound integration and differentiation driven by compliance. Traditional financial giants are entering the crypto world through compliant channels, while native crypto forces are exploring different paths to survival.

Whether you are an observer focusing on industry trends, a builder seeking opportunities, or a prudent investor , this episode's guests will provide valuable insights from legal, financial, tax, and frontline risk perspectives , clarifying the connections and interactions between the crypto industry and traditional industries.

Meg: The topics discussed at the pub were quite lighthearted, changing the perception of lawyers as rather "dull." It's a platform for Web3 Builder to capture trending topics and exchange viewpoints. The conversation was relaxed and down-to-earth. Now, let's get to the main topic.

Q1: What is your opinion on Circle obtaining a banking license?

CrypoMiao: Let's talk about Circle obtaining a banking license. From an industry researcher's perspective, this is undoubtedly a proactive offensive, not a compromise. Circle's core market is in the US compliance field, and its strategy is to focus on compliance and seize the initiative in the Web3 legalization process.

Previously, Circle faced extremely high compliance costs, eroding significant profits . However, after its successful IPO and the support of the capital markets, they are more confident in driving the convergence of Web3 and Web2. Applying for a national banking license is a crucial step, not only to meet regulatory requirements but also to establish a leading position before regulations become clear. Once the US officially recognizes stablecoins for payment settlement, USDC is likely to become the preferred choice .

Furthermore, Circle, which had previously obtained licenses in the EU, Abu Dhabi, and other locations, now completes its US banking and trust license, meaning it can transfer its custody business from third parties to its own bank, significantly reducing friction and costs in the intermediary process . This is essentially an integration of upstream operations, further solidifying its competitive advantage. The partnership with Visa also confirms this—settlement relies heavily on banking, and internalizing these profits is part of Circle's long-term strategy.

In short, Circle is betting on a future: to become a cornerstone recognized by the mainstream financial system through thorough compliance before stablecoins are fully adopted in the United States.

In short: Circle is not compromising, but rather seizing the cornerstone position for future stablecoin payments and settlements through thorough compliance.

Q2: What does Visa's choice of USDC mean?

Jie Hui: As a global financial clearing giant, Visa connects banks, merchants, and national financial systems. Compliance and risk control are its lifelines, and it would never dare to use a partner like USDT with opaque regulation and unclear auditing. Circle, on the other hand, operates under a clear US regulatory framework . Having just obtained a banking license, it is already far ahead in the race for legal standing, making Visa's cooperation with it almost inevitable.

This doesn't mean USDT is out of the game. On the contrary, it may usher in a tiered era for stablecoins: compliant stablecoins like USDC will become the "clearing layer," specifically connecting to traditional financial institutions like Visa; while USDT will continue to dominate the "circulation layer," remaining active in applications such as exchanges and DeFi.

More importantly, this collaboration marks a fundamental shift in the identity of Circle and USDC —from a crypto company into an infrastructure recognized by the traditional financial system, marking a crucial "coming of age."

In short: Visa's choice marks the beginning of a "tiered era" for stablecoins, with USDC becoming a "clearing layer" recognized by traditional finance. This collaboration signifies a fundamental shift in the identities of Circle and USDC.

Q3: What is your opinion on the SEC's shift in attitude from "risk prevention" to "public education"?

Gao Mengyang: The SEC's attitude has changed, which is actually related to the direction of the current US administration, which is relatively open to the crypto industry . Circle and Tether have taken two completely different paths: one is desperately trying to comply with regulations and squeeze into the traditional financial circle; the other is less transparent and more like crypto native. This forces us to think: will crypto ultimately become part of traditional finance, or will it start from scratch? To be honest, everyone is still exploring.

CrypoMiao: Tether has been audited, but about 20% of its reserves are in Bitcoin and gold, which is equivalent to using users' money to "bet". In case of other situations, USDT may also depreciate. This kind of operation is difficult to pass under strict regulation, so it takes a high-risk, high-flexibility approach, which is completely different from Circle's steady and cautious style.

Jie Hui: Experienced investors actually prefer USDC for its stability. The SEC's current approach is also very clear: first, warn of the risks; then, provide investor education; next, they will likely clarify responsibilities and regulate many tokens as securities. Regulation is gradually taking shape.

The market is changing precisely because regulations are becoming clearer. Many altcoins failed to take off in this round; some projects raised funds, enjoyed a brief period of hype, and then faded away—I can't even remember their names. The industry is undergoing a reshuffle, which may also be a process of moving towards standardization.

In short: The SEC's shift is a systemic regulatory stepping stone aimed at establishing a framework of accountability, which has accelerated the industry's reshuffling and formalization process.

Q4: This round of regulatory environment is favorable to the industry, but many operations have not yielded satisfactory returns. Under this new trend, which sectors are likely to become the main drivers of the next round of market trends?

CrypoMiao: I think the next round, besides stablecoins, will be more about having compliant pricing tools on the blockchain, which will allow many real-world things to be "on-chain". For example, RWA (Real-World Assets), and various security tokens, such as equity and storage rights of non-listed companies. Although the current scale may only be a few hundred billion, the potential is huge.

So why is Circle seeking a banking license ? Because when massive transactions occur on-chain, every single transaction must go through a compliant banking channel for clearing. It doesn't just want to be a Web3 company; it wants to become the underlying clearing layer for traditional assets on-chain.

Beyond these directly money-related applications, many more application-oriented things may emerge in the next 3 to 5 years, such as copyright on-chain, decentralized storage, blockchain-encrypted identity login, and even game equipment truly belonging to players. The first batch of Web3 applications will definitely be related to payments and transactions, but gradually, application giants like Tencent and Meta will emerge. This evolution will take time , but I think the direction is clear.

In short: RWA (Real-World Assets) and security tokens are clear directions in the medium term, while in the long term, super applications based on new financial infrastructure will emerge.

Q5: With increased industry compliance, have legal risks truly decreased for practitioners? Which areas remain high-risk zones?

Gao Mengyang: I think the risks have actually not decreased, but may have increased. Because when we talk about compliance, we are mostly not referring to compliance in China, and the domestic regulatory attitude has always been very clear.

Holding virtual currency in mainland China is not illegal for individuals, but policy does not support it. Your own investment activities, whether profitable or not, are primarily business risks. The real legal minefield is the withdrawal process —when you sell USDT for fiat currency, it's difficult to determine the source of the funds. Dirty USDT certainly carries risks, but the investigation and consequences of "dirty money" are far more severe; the banking system can trace many intermediaries. This is what individual users need to be most wary of.

If you are a professional in this field, the risks are much more complex. Only projects that explicitly block Chinese users, have no Chinese interface, or exclude China in their user agreements may have relatively controllable risks – somewhat like doing remote outsourcing for overseas clients.

In short, while personal investment is not prohibited by law, withdrawals should be approached with extreme caution. Those working in the industry must clearly understand their role and the nature of their projects; compliance is not just lip service, but requires a thorough examination of specific user groups and operational details.

In short: Global compliance is not the same as domestic legality; the biggest pitfall is the process of individual withdrawals; and the risks for practitioners vary drastically depending on the project's location and the user's profile.

Quick Q&A Time

Question 1: How has the crypto world changed in your eyes?

Jie Hui: I've held Bitcoin since 2017, initially with the belief that "one coin equals a villa." Although it has risen considerably, I haven't reached my goal yet, and given the high risks of depositing and withdrawing funds, I haven't touched it. I feel that the crypto world used to be very "wild," full of utopian ideals of permissionless access and code as law; now, with large institutions entering the market, compliance, licensing, and KYC have become mainstream, and things have changed a lot. But the underlying consensus and decentralized rules of Bitcoin haven't changed, and as a holder, I will continue to hold on.

Question 2: What do young people lack most?

Gao Mengyang: I believe the biggest deficiency among everyone is risk awareness . Individual investors need to be wary of the risk of "dirty money" when withdrawing funds; practitioners need to be even more careful, especially in China, where this industry is not encouraged and many places are struggling to make ends meet. He emphasized that prevention is always more important than remediation!

Question 3: Looking ahead to Web3 in the next 5 years.

CrypoMiao: I think in the early stages it will be more like a hybrid of banking and technology, because financial infrastructure is needed to connect Web2 and Web3, such as clearing houses and exchanges. But in 3 to 5 years, the focus will shift to the application layer, such as on-chain storage, encryption, and content platforms, at which point it will be more like the pure internet.

Conclusion

Risk warning:

The crypto industry was not simply "incorporated," but rather under pressure to comply with regulations, it underwent a deeper round of differentiation and restructuring. Compliance is not the finish line, but a screening mechanism that determines which entities can remain within the system.

For individuals, risk control should always take precedence over profit judgment during periods of significantly increased uncertainty; and for practitioners, what is often more important than technical skills is a clear understanding of their own position and business boundaries.