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Last Updated: 2 years ago


There has been a number of pushback in Congress to the argument that every one stablecoins must be issued by Federal Deposit Insurance Corporation (FDIC)-backed, federally insured banks, notably by members who need state-chartered banks to have the ability to get in on the motion.

That suggestion, which got here out of the President’s Working Group on Financial Markets November stablecoin report, already has one huge proponent within the USDF Consortium, a gaggle of 9 FDIC-insured banks which have gotten collectively to difficulty a bank-backed stablecoin.

Launched in January, the group’s members every have of $1 billion to $60 billion and embrace Amerant Bank, Atlantic Union Bank, ConnectOne Bank, FirstBank, NBH Bank, New York Community Bank (NYCB), Primis Bank, Synovus Financial and Webster Bank.

See additionally: US Banks Plan USDF Stablecoin

The banks, which may mint USDF tokens on demand, have used the dollar-backed stablecoins for B2B payments and real-time settlement of securities transactions, Ashley Harris, chair of the USDF Consortium, informed E-Crypto News. USDF has additionally seen some use in cross-border transactions, in response to studies.

“USDF itself does not need to be insured,” Harris stated, per the report. “USDF is a digital marker that represents direct obligations of bank, and therefore, the deposits that underlie USDF on a 1-to-1 basis are eligible for FDIC insurance, subject to the standard deposit insurance coverage limit.”

It additionally “satisfies important principles of safety and soundness, compliance with anti-money laundering standards, and financial stability,” stated Andrew Kaplan, NYCB’s chief digital and Banking-as-a-Service officer, in a statement.

Referring to the $48 billion collapse of the Terra/LUNA algorithmic stablecoin ecosystem in May, USDF Consortium CEO Rob Morgan informed Forbes in August: “If policymakers want to realize the benefits of blockchain technology while maintaining critical protections, they should look to the bank regulatory framework.”

Morgan added that for banks, “the implementation of blockchain technology does not fundamentally change the nature of banking or how regulation controls for the risks associated with it.”

‘Tokenized Deposits’

Morgan additionally differentiated between USDF and stablecoins, saying that they’re extra precisely “tokenized deposits” in an August interview with The Financial Brand.

“It’s a reference to an existing bank deposit which is held as a liability against an insured depository institution,” Morgan stated, per the report. “Tokenized deposits are not designed to be purchased at exchanges, but function as an infrastructure layer to make bank payments more efficient.”

Rather than “trying to create a bridge towards the crypto ecosystem that exists, … we’re trying to help banks build on a new ledger technology — blockchain — for traditional financial services.”

The most rapid use case, Harris stated, “is real-time, 24/7 payments,” including: “Banks can pay a fraction of the price to facilitate funds, customers will profit from rapid transactions, and retailers will profit by avoiding interchange charges…

“The value proposition is very high,” she stated.

In this use case, a USDF financial institution’s buyer “can log in to their bank’s online banking platform and have an option to send money via the USDF network,” she defined. “The bank will mint and transfer USDF to the recipient bank on behalf of the customer, and the recipient bank will then credit the recipient customer’s depository account with the amount of money that was transferred.”

There shall be, she added, “significant cost advantages.”

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