Stablecoin owners could reportedly be insured against losses of up to $250,000 if the bank where reserves are held collapses — but there are caveats and complications.
Big changes to the stablecoin market could be on the way in the U.S., according to reports.
A major banking regulator is now exploring whether some stablecoins could be eligible for insurance.
CoinDesk — which spoke to multiple insiders — means that stablecoin owners could be insured against losses of up to $250,000.
This protection would kick in if a bank where the funds backing up a stablecoin’s value collapsed.
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Caveats and Complications
There are a number of caveats and complications related to the measures being explored by the Federal Deposit Insurance Corporation.
Many of the leading stablecoins are pegged to the value of the U.S. dollar — and this means that, in theory, there’s $1 in the bank for every unit in circulation.
But although Tether has a market cap of $68.1 billion, that doesn’t mean this issuer has that amount of cash sitting in a bank somewhere.
Instead, it’s backed by a grab-bag of cash and “cash equivalents” like Treasury bills and corporate commercial paper — and close to 25% is held in less secure assets such as secured loans and precious metals.
Any eligibility for insurance under FDIC would have to be related to the cash held in a financial institution.
Another — potentially thornier — issue relates to the fact that issuers would need to keep track of who owns their stablecoins… and how much they have in their account.
This could prove difficult in a world where stablecoins are constantly moving around on public blockchains including Ethereum.
On the face of it, this could be welcome news for crypto investors — but inevitably, there would be concerns about creeping centralization and privacy.
The U.S. is currently exploring whether stablecoins should be subject to tighter regulations.
Speaking to the House Financial Services Committee last week, Federal Reserve Chairman Jerome Powell said:
“They’re somewhat outside the regulatory perimeter, and it’s appropriate they be regulated — same activity, same regulation.”
