The Federal Deposit Insurance Corp. (FDIC) is holding preliminary talks on making some stablecoins eligible for coverage, insiders reported to Coindesk. The government agency is trying to establish what this insurance might look like for stablecoin reserves being held in banks. If the holder fails, the insurance would cover losses up to $250,000 in cash.
The FDIC is also discussing regular, direct deposit insurance for institutions that want to issue stablecoins. One insider said:
This is all part of a process by which they are trying to bring stablecoins into the banking system in a responsible manner. It depends on what’s backing the stablecoins. If it’s backed by reserves at the Fed for cash, then I think you just make the argument that it’s a deposit. If it’s backed by treasuries, I think you’ll have a hard time treating it as a deposit.
Government to subject stablecoin issuers to bank-like regulations
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Earlier this week, the Wall Street Journal reported the Biden administration would put the same regulations in place for stablecoin issuers as those that apply to banks. Recently, USD Coin issuer Circle reported SEC had sent them an investigative subpoena. USDC is the biggest stablecoin by market cap after Tether.
Tether and USDC have come under scrutiny regarding backing. Stablecoins are supposed to be pegged to the US dollar in a 1:1 ratio. Insiders report that stablecoin issuers don’t have the same FDIC insurance as crypto exchanges when they’re banking in the US.
Crypto exchanges can obtain insurance of up to $250,000 for each one of their clients. Stablecoin issuers, on the other hand, don’t enjoy this kind of protection.
Todd Phillips, a former FDIC lawyer, commented:
The FDIC is probably looking at whether stablecoins can count as deposits or whether someone’s ownership of a stablecoin is a deposit at the stablecoin issuer. One thing to remember is that each person has insurance of only up to $250,000. So, the stablecoin issuer would need to keep track of who is the current holder of their stablecoin, and how many they own. The FDIC basically has one overriding mission which is to ensure the safety of the Deposit Insurance Fund, the DIF. If the FDIC were to insure a stablecoin, that insurance would come out of the DIF and the FDIC will want to be very sure that they are on legal footing and that whatever they do doesn’t risk the DIF.