What happens if the issuer collapses? Can stablecoin holders have $250,000 deposit insurance? The Federal Deposit Insurance Corporation is researching.

The Federal Deposit Insurance Corporation (FDIC) in the United States is exploring deposit insurance for stablecoins, which would ensure holders of stablecoins are protected against losses of up to $250,000 in the event that the bank holding the collateral fails.

An anonymous source stated that the FDIC is studying whether stablecoins issued by banks are eligible for its insurance coverage and how they could qualify for regular direct deposit insurance.

Todd Phillips, former FDIC lawyer and current director of financial regulation and corporate governance at the Washington think tank American Progress, said that the FDIC may be considering whether stablecoins can be treated as deposits or if someone's ownership of stablecoins is considered a deposit with the stablecoin issuer.

The FDIC, a major U.S. banking regulator, is looking to introduce stablecoins into the banking system, but insiders say, "It depends on what supports the stablecoin," meaning if it is backed by cash reserves from the Federal Reserve, it is a deposit, but if it is backed by U.S. Treasuries, it is challenging to classify it as a deposit.

A recent report from The Wall Street Journal stated that the Biden administration is looking to subject stablecoin issuers to bank-like regulation. The issuer of the second-largest stablecoin, USDC, Circle, disclosed that the U.S. Securities and Exchange Commission (SEC) issued a subpoena to the company in July. The two largest stablecoins, Tether's USDT and USDC, are currently under scrutiny.

Currently, the FDIC can insure customers of cryptocurrency exchanges for up to $250,000 under FDIC insurance, but stablecoin issuers do not have the same protection.

However, whether they can be insured by the FDIC may pose challenges for stablecoin issuers. Typically, these companies identify customers when they deposit stablecoin cash or exchange stablecoins, but since stablecoins operate on open public blockchain networks (usually Ethereum), theoretically anyone with an unblacklisted crypto wallet can receive stablecoins from one wallet and send them to another.

Todd Phillips mentioned that everyone is insured for a maximum of $250,000, so stablecoin issuers need to know who the current holders of their stablecoins are and how much they own.

Furthermore, Todd Phillips stated that if the FDIC were to insure stablecoins, the insurance would come from the Deposit Insurance Fund (DIF). Therefore, the FDIC must be very sure that stablecoins are in a legal position and that whatever they do does not pose a risk to the DIF, which, of course, helps protect consumers.

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