Stablecoins Getting FDIC-Insured Could Be A Game-Changer

January 13, 2022 9:34 pm Comments

Today, if a banking institution is backed by the Federal Deposit Insurance Corporation (FDIC), it provides capital protection to depositors.

This is due to the fact that FDIC-insured banks protect bank depositors by insuring up to $250,000 in total in case the bank fails and has to close down.

Typically, this insurance is for fiat currency and is one of the main reasons that the vast majority is willing to deposit their earnings with banking institutions.

Recently, a group of banks which include the New York Community Bank, FirstBank of Nashville, and Synovus announced the release of launching their own version of a stablecoin, called USDF, in an effort to take part of crypto adoption.

Officials from the banking intitutions report that they are designing the stablecoin to be able to able to be covered by the FDIC by ensuring that the underlying assets that back the USDF are insured by the FDIC.

CoinDesk reports:

“We are designing the network to allow for FDIC insurance to apply to the deposits underlying USDF, up to the $250K limit,” Andrew Kaplan, NYCB chief digital and banking as a service officer, told CoinDesk.

Figure co-founder Mike Cagney tweeted that “USDF is a fungible claim to fiat to any member bank. USDF can only be delivered to a KYC’d wallet, and such movement is visible on the public chain. This combination satisfies the primary regulatory objectives.”

That being said, their has been no official confirmation from the FDIC that these stablecoins would pass the criteria to be insured.

Although this decision is still pending, it seems that private stablecoins like USDF will likely play a significant role in the future.

Federal Reserve Chair Jerome Powell has mentioned in meeting last week that they do not see private stablecoins like USDF being banned in favor of a central bank digital currency.

Instead, there will be multiple stablecoins that will co-exist that will be accessible to all banking clients to perform financial transactions.

So far, public reaction seems pretty positive due to the possible tangible benefits that it will provide which includes reducing all financial transaction costs, easier access to credit for the majority of businesses, and a centralized system to manage all financial information.

Finextra reports:

Valerie Kramer, NBH Bank’s chief digital officer says the Consortium expects to significantly grow its membership of FDIC-insured banks through 2022 and beyond.

“The USDF Consortium will allow banks of all sizes, and importantly, community banks, to provide the digital banking solutions that more and more of our clients expect,” she says.

“This aligns with our focus on building out a comprehensive digital financial ecosystem to provide greater access to credit, FDIC-insured depository and treasury management solutions, and integrated financial information, all while lowering transaction costs for small and medium-sized businesses.”

The USDF consortium is actively looking to seek out additional banks to join in this initiative.

As part of a longer term strategic vision, they see that this could have the potential to replace ACH, Wire, and Swift transactions in the future which would greatly change the banking landscape.

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