State vs. Federal Regulation of Digital Asset Companies
Like traditional financial institutions, regulated digital asset companies in the U.S. operate under two broad oversight frameworks: state and federal.
While each imposes a degree of oversight, they differ meaningfully in the scope of regulation, standards imposed, and consumer protections. Understanding those differences matters whether you're an institution evaluating a stablecoin issuer, a fintech company choosing a brokerage partner, or a policymaker thinking about the future of financial regulation.
This post breaks down how each framework works, where they diverge, and what the passage of the GENIUS Act means for the industry going forward.
How state regulation works
Prior to the passage of the GENIUS ACT in July 2025 and the OCC approving digital asset trust charters in earnest, digital asset companies were historically regulated at the state level through money transmitter licenses (MTLs) and state trust charters.
A state trust charter, like those pioneered by the New York Department of Financial Services (NYDFS), provides prudential oversight of the company. That means the regulator supervises reserve composition, requires segregation of customer and corporate assets, and enforces compliance with federal anti-money laundering and know-your-customer standards. However, the rigor imposed by state regulators is not uniform. While the NYDFS has been one of the most active state regulators in this space and has set a high bar, other state regulators are new to the space and still developing the expertise to impose a stringent regulatory regime.
Digital asset companies in the United States predominantly rely on MTLs, either to augment their state trust charters or as their sole regulatory platform in the U.S.. Critically, state MTLs only regulate the act of money transmission (and in many states, merely fiat transmission), and so the license requirements, related exams, and consumer protections have a limited scope on money transmission related regulations. MTLs do not impose requirements on many core elements of a digital asset company, including asset custody, asset risk management, reserve management. These are critical consumer protections for all digital asset companies, but particularly relevant for stablecoin issuers, where prudential regulatory oversight must ensure tokens are always backed 1:1 on a safe and sound basis to handle any market disruptions is paramount to maintaining token safety and utility.
How federal regulation works
At the federal level, the Office of the Comptroller of the Currency (OCC) charters and supervises National Trust Banks. A company operating under an OCC National Trust charter (like Paxos) is subject to federal supervision on a nationwide basis with standards that are generally materially more stringent than most state frameworks.
Those higher standards are evidenced in a few key areas:
Consumer protections are stronger and more uniform.
Supervision is more comprehensive, covering the full scope of a company's operations rather than just a single product line.
All customer assets benefit from bankruptcy-remote protections under federal law.
Federal regulation also eliminates the patchwork problem. Instead of navigating dozens of constantly changing state-by-state requirements, a federally chartered company operates under a single, consistent set of rules. For companies that offer multiple products (stablecoin issuance, crypto brokerage, custody, settlement) this is significant. A state trust or MTL may cover one activity while leaving others in a gray area. An OCC National Trust can cover the full product suite under one regulatory perimeter.
Federal oversight vs. state oversight
Federal (OCC National Trust) | State (Trust Charter / MTL) | |
|---|---|---|
Scope of oversight | Covers full range of trust operations and related banking activities under a single charter | Often applies to specific activities; may require separate licenses for stablecoin issuance, brokerage, custody, asset/fiat transmission, etc. |
Consumer protections | Stronger bankruptcy-remote protections for customer assets under federal law | Bankruptcy protections vary based on state law |
Supervision | Ongoing supervision with a dedicated OCC examination team | Examination schedules vary by state in frequency and depth and may only cover a limited product set |
Consistency | Uniform national standards | Requirements differ across jurisdictions; a company operating nationally may hold dozens of individual state licenses |
Where we stand
We operate as an OCC-regulated National Trust Bank, having converted from our NYDFS trust charter in December 2025. Our OCC charter covers the full scope of our business, including stablecoin issuance and crypto brokerage, under a single federal regulatory perimeter.
The distinction between state and federal frameworks matters for anyone evaluating a digital asset infrastructure provider, and it's worth understanding what level of oversight your partners actually operate under.
For more on how regulation impacts the products and infrastructure we offer, visit paxos.com or contact policy@paxos.com.
