FDIC is looking for reserve and deposit insurance for Stablecoins

The Federal Deposit Insurance Corp. or FDIC is having fundamental discussions for making stable coins qualified for coverage. The agency is trying to analyzing how this insurance will look like for stable coins reserves held in banks. In case the holder fails, the insurance should cover up to $250,000 losses in cash.

The FDIC also talks about regular and direct deposit insurance for institutions that wish to issue stable coins. An insider said,

“This is all part of a process by which they are trying to bring stable coins into the banking system in a responsible manner. It depends on what’s backing the stable coins. 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.”

Earlier this week, the Biden administration decided to put the same regulations for stable coin issuers as those of banks. Circle, the USD Coin issuer, reported that SEC had sent them an investigative subpoena. USDC happens to be the giant stable coin by market cap after Tether.

Both USDC and Tether have come under scrutiny regarding backing. This is because stablecoins should be pegged to the US dollar in a 1:1 ratio. But stablecoin issuers don’t hold the same FDIC insurance as crypto exchanges when they are banking in the US.

Crypto exchanges can be insured up to $250,000 for each client. But stablecoin issuers can’t enjoy this kind of protection.

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