US FDIC in Process of Analyzing Deposit Insurance for Stablecoins

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by Juhi Mirza · 3 min read
US FDIC in Process of Analyzing Deposit Insurance for Stablecoins
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FDIC is also assessing what direct deposit insurance would look like for banks who that to issue stablecoins in near future.

The Federal Deposit Insurance Corp (FDIC), which is a leading banking regulator in the US, is currently assessing whether certain stablecoins are eligible for its insurance coverage. The discussions have been held at a preliminary stage for now and it is not clear whether the changes in terms of policies and procedures have been formulated or not.

According to multiple sources, the agency is contemplating how to implement its FDIC insurance coverage for reserves that the stablecoin issuers are holding with the banks at present.

FDIC Exploring Ways to Include Stablecoins into the Regular Banking Infrastructure

FDIC is also contemplating and assessing what direct deposit insurance would look like for banks who wish to issue stablecoins in near future.

Stablecoins have recently attracted a lot of controversies and are subjected to constant scrutiny from regulators and the US government. According to the reports published by the Wall Street Journal, the Biden-led administration has given direct orders to include stablecoin issuers under regular bank-like regulations to keep them in check. Furthermore, Circle, which is the leading issuer of USDC (the second largest stablecoin) has announced that the SEC had sent a subpoena to the company in July, highlighting the level of inspection that stablecoins are often subjected to.

It has generally been observed that stablecoin issuers do not possess the same kind of pass-through FDIC coverage as other crypto exchanges when they are banking in the US. Due to this, exchanges can earn access to multiple accounts that hold the funds belonging to their clients which are already insured against losses up to $250,000, but the issuer of stablecoins are not liable to get this type of protection which can result in jeopardizing their client’s monetary assets.

The coverage also comes with a certain set of risks. Usually, the issuers identify their customers when they submit cash for stablecoins or redeem their tokens to procure cash. Since stablecoins run on an open blockchain network (based on Ethereum), any random consumer with a crypto wallet can receive and send stablecoins to other wallets.

Todd Phillips, a former FDIC lawyer has opined that the stablecoin issuers must keep a track of how many coins are owned by consumers since the FDIC insurance coverage collateral is limited to $250,000 only. He further stated that FDIC has one main goal and that is to secure the DIF. Phillips explained that the insurance money used to sponsor a stablecoin in the future will be spent from the DIF and the FDIC has to make sure that the process is established on legal grounds. Moreover, he also said that FDIC will also be responsible for keeping a check on the DIF, ensuring that the Deposit Insurance Fund is not jeopardized in any possible way.

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Juhi Mirza
Author Juhi Mirza

Juhi Mirza is an archaeology major who is obsessive about blockchain/Crypto technology and deems it to be the foundational philosophy of the future. Her dogged ability to research and crystallise technical facts/multiple perspectives into rivetting stories makes her an accessible finance writer. She tends to her archaeological pursuits and loves unearthing the past over the weekends.

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