FDIC Cracks Down on Stablecoin Insurance Loophole

The Federal Deposit Insurance Corp. (FDIC) is set to propose a rule that would explicitly bar stablecoin holders from receiving deposit insurance, even through third-party financial firms. This move aims to close a potential loophole in the GENIUS Act, which already bans direct FDIC coverage for stablecoins.

The proposed rule aligns with the intent of the GENIUS Act, which distinguishes stablecoins from bank deposits and excludes them from federal guarantees. The act's silence on pass-through insurance was seen as a potential loophole, but the FDIC's chairman, Travis Hill, said that this door will now be shut.

The current pass-through rules require end-customer identities to be readily ascertainable, which is not commonly met by large stablecoin arrangements today. The FDIC also plans to treat tokenized deposits, which are bank deposits represented as programmable blockchain tokens, the same way as conventional deposits.