FDIC blocks insurance for stablecoin users: ‘Inconsistent with GENIUS Act’

With blockchain technology adoption on a record run, stablecoins have taken center stage.

Their adoption shifted from mere individual transactions toward institutional and central bank transfers, signaling growing demand. 

As a result, the stablecoin market cap climbed to a new all-time high of $314 billion with $97 billion in trading volume. Amid this rising market dominance, the U.S. Congress passed the GENIUS Act, establishing regulatory clarity on stablecoin use. 

Stablecoin users ineligible for deposit insurance

The implementation of the Genius Act has come with its hurdles, especially leading to direct conflict between banks and the crypto industry.

Travis Hill, the chairman of the US Federal Deposit Insurance Corp. (FDIC), presented major rules his agency is working on.

The proposed rule intends to clarify that pass-through deposit insurance will not be permitted for stablecoin users. 

According to Chairman Hill, users won’t receive any benefits from the government’s guarantee over their funds once the governing law is implemented.

Under the GENIUS Act, regulators added a ban on FDIC insurance for stablecoin holdings. 

Hill added that, 

The FDIC intends to propose that payment stablecoins subject to the Genius Act are not eligible for pass-through insurance.

Additionally, the GENIUS Act prohibits stablecoin issuers from representing that their payments are fully backed by the faith of the U.S. government.

Therefore, Hill argued that such a prohibition worked within the frameworks of the law. He added, 

Treating stablecoin holders as the insured depositors, even on a pass-through basis, seems inconsistent with the GENIUS Act.

It is also difficult to estimate the extent to which stablecoin arrangements would qualify for pass-through insurance if they were eligible.

Usage still holds steady

Despite the growing hurdles for stablecoin users, market usage continued to grow, reaching a record high. According to Artemis data, Stablecoin Adjusted Transaction Volume rose to $7.2 trillion, accompanied by 1.9 billion stablecoin transactions.

At the same time, addresses continued to surge, reaching a high of 48.7 million. Rising transaction volume and address counts together signaled strong, organic demand for these assets.

This also showed the growing acceptance of stablecoins as a means of payment across all market participants.

With legal clarity in place and the potential passage of the Digital Asset Market Clarity Act, the use of stablecoins is positioned for further growth. Therefore, the lack of deposit insurance is unlikely to derail the growth currently experienced across the sector.

Final Summary

• Payment stablecoins subject to the Genius Act are not eligible for pass-through insurance, says FDIC Chairman Travis Hill.
• Stablecoin adoption and usage continued to surge, hitting a record high of $314 billion in market cap and $7 trillion adjusted volume.