Five U.S. banks have joined together to launch the USDF stablecoin, a bank-minted alternative to non-bank-issued stablecoins that will offer a “more secure” option for U.S. consumers and be redeemable for cash at member banks on a 1:1 basis.
The USDF Consortium includes New York Community Bank (NYCB), NBH Bank, FirstBank, Sterling National Bank, and Synovus Bank. All are insured by the Federal Deposit Insurance Corporation (FDIC), the agency created by Congress to maintain stability and confidence in the U.S. financial system.
Available on the public Provenance blockchain, USDF will facilitate money transfers. Banks and their customers will also be able to use USDF for capital call finance, invoice, and supply-chain finance. The Provenance Blockchain was built by Figure Technologies, a fintech firm whose investors include Digital Currency Group.
Stablecoins are a class of cryptocurrencies that attempt to offer price stability and are pegged to reserve assets such as fiat currencies. They are attractive because they offer the best of both worlds—the instant processing and security or privacy of crypto payments and the volatility-free stable valuations of fiat currencies, according to Investopedia.
However, there have been concerns in the past about the reserves backing up nonbank stablecoins such as Tether’s USDT. Tether recently froze around $1 million in USDT in a private digital wallet, making it pretty much unusable, PYMNTS reported. The company said this happened because an unspecified regulator or law enforcement agency requested it.
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USDF will be a bank-minted alternative to Tether’s USDT and Circle’s USDC coin, which account for more than 80 percent of the $170 billion stablecoin market. USDT has a market cap of close to $78.423 billion, according to Coinmarketcap. USDC has a market cap of $44.983 billion.
Regulatory compliance appears to be a major point of focus for the consortium, CryptoBriefing reported.
A press release stated that USDF “addresses the consumer protection and regulatory concerns” associated with decentralized stablecoins and “offers a more secure option” for using blockchains.
Stablecoins have been a major concern for U.S. regulators in recent months. Members of the Senate, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, Securities and Exchange Commission Chair Gary Gensler, and others have warned against the risks of stablecoins as the DeFi grows.
While the founding members of the USDF Consortium are FDIC-insured, the announcement does not specify whether the reserves backing USDF would be. The FDIC has been considering whether stablecoin reserves should qualify for its pass-through insurance, which would cover token holders up to $250,000 if the bank holding the collateral were to fail, CoinDesk reported.
Photo by Giorgio Trovato on Unsplash
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?