There has been a lot of resistance in Congress to the argument that all stablecoins should be issued by federally insured banks, backed by the Federal Deposit Insurance Corporation (FDIC), especially by members who want state-chartered banks can enter the market. stock.
This suggestion, which emerged from the President’s Task Force on Financial Markets report on stablecoins in November, already has a big proponent in the USDF Consortium, a group of nine FDIC-insured banks that have come together to issue a bank-backed stablecoin.
Launched in January, members of the group each have between $1 billion and $60 billion and include Amerant Bank, Atlantic Union Bank, ConnectOne Bank, FirstBank, NBH Bank, New York Community Bank (NYCB), Primis Bank, Synovus Financial and Webster Bank. .
See also: US Banks Plan USDF Stablecoin
Banks, which can mint USDF tokens on demand, have used dollar-backed stablecoins for B2B payments and real-time settlement of securities transactions, USDF Consortium Chair Ashley Harris told E-Crypto. News. The USDF has also been used in cross-border transactions, according to reports.
“The USDF itself does not need to be insured,” Harris said, according to the report. “The USDF is a numerical marker that represents the direct obligations of the bank, and therefore deposits that underlie the USDF on a 1-to-1 basis are eligible for FDIC insurance, subject to the limit of standard deposit insurance coverage.”
It also “satisfies important principles of security and soundness, compliance with anti-money laundering standards and financial stability,” said Andrew Kaplan, chief digital and Banking-as-a-Service at NYCB, in a statement.
Referencing the $48 billion collapse of the Terra/LUNA algorithmic stablecoin ecosystem in May, USDF Consortium CEO Rob Morgan told Forbes in August: “If policymakers want to take advantage of blockchain technology while maintaining critical protections, they should turn framework.”
Morgan added that for banks, “implementing blockchain technology does not fundamentally change the nature of banking or how regulation controls the risks associated with it.”
Morgan also distinguished between USDF and stablecoins, saying they were more specifically “token deposits” in an August interview with The Financial Brand.
“This is a reference to an existing bank deposit that is considered a liability against an insured depository institution,” Morgan said, according to the report. “Tokenized deposits are not designed to be purchased on exchanges, but function as an infrastructure layer to make bank payments more efficient.”
Rather than “trying to bridge the crypto ecosystem that exists, … we are trying to help banks leverage a new ledger technology – blockchain – for traditional financial services.”
The most immediate use case, Harris said, “is real-time, 24/7 payment,” adding, “Banks will pay a fraction of the cost to facilitate payments, users will benefit immediate transactions and merchants will benefit by avoiding trades”. costs…
“The value proposition is very high,” she said.
In this use case, a USDF bank customer “can log into their bank’s online banking platform and have the ability to send money through the USDF network,” it said. she explains. “The bank will mint and transfer the USDF to the receiving bank on behalf of the customer, and the receiving bank will then credit the receiving customer’s deposit account with the amount of money that has been transferred.”
There will be, she added, “significant cost benefits”.
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