FDIC issues new guidance on insurance of tokenized bank deposits

Main highlights

• The FDIC is creating new guidance for verifying bank deposits placed on blockchain, known as “tokenized deposits.”
• Acting Chairman Travis Hill clarified that tokenized deposits are issued and managed directly by FDIC-insured banks that provide consumer protection.
• The upcoming guidance will provide clear guidance for banks to focus on risk management in sensitive areas such as blockchain interoperability, cybersecurity and AML rule compliance.

Travis Hill, acting chairman of the Federal Deposit Insurance Corporation (FDIC), announced that the agency is developing new guidance regarding “tokenized deposit insurance.” He made the announcement at a conference hosted by the Philadelphia Fed.

According to Bloomberg, FDIC Acting Chairman Travis Hill said the agency is developing guidance on “tokenized deposit insurance” to provide clearer regulatory parameters for financial institutions looking to expand into digital assets. Hill is a traditional…

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“My long-standing view is that a deposit is a deposit, and moving a deposit from the traditional financial world to the world of blockchain and distributed ledgers should not change its legal nature,” Chairman Travis Hill said at the conference. This means that these tokenized deposits are insured up to the standard $250,000 per depositor.

FDIC provides insurance for tokenized bank deposits

A tokenized deposit is a digital token on a blockchain that represents a claim on a bank deposit. As the concept of tokenization booms, this statement from Acting Chairman Hill brings clear attention to this blockchain-based concept.

In his statement, Hill clearly explained the difference between stablecoins and tokenized deposits. He explained that unlike stablecoins, which are often issued by companies outside the banking system, tokenized deposits are issued and managed by FDIC-insured banks.

He said deposits are deposits, but by putting them on blockchain technology, transactions can be made faster and more efficiently without removing important consumer protections such as FDIC insurance.

This regulatory clarity is critical as stablecoins have faced issues in the past, such as the TerraUSD collapse in 2022, where users were unable to exchange their tokens for the promised value.

Future FDIC guidance will provide a pathway for banks wishing to use blockchain technology. We will cover important areas such as risk management, cybersecurity, and compliance with anti-money laundering rules when connecting different blockchains.

This regulatory development by the FDIC will foster innovation while protecting America’s vast $20 trillion deposit base. Some critics have raised concerns that the use of blockchain could complicate insurance claims if a bank fails. However, Hill asserted that with strong auditing and existing insurance regulations, these risks can be managed.

Regulators work on regulatory frameworks

The day before, new Securities and Exchange Commission (SEC) Chairman Paul Atkins unveiled a proposed “token classification” framework.

These new regulatory developments come in a clear departure from previous leadership under Gary Gensler, which relied heavily on litigation to regulate the industry. Chairman Atkins introduced a new system based on the long-established Howie test to clearly distinguish which digital tokens are securities and which products are commodities.

“I believe that most crypto tokens traded today are not securities in and of themselves. Of course, it is possible that certain tokens were sold as part of an investment contract in a securities offering. This is not a radical statement, but a simple application of securities law,” Paul Atkins said in an official statement.

“The statute defining securities enumerates well-known instruments such as stocks, notes, and bonds, and adds a more liberal category of “investment contracts.” The latter term describes the relationship between the parties. It is not a non-removable label affixed to an object. Also, unfortunately, it was not defined by the law,” he said.

Some industry experts estimate that this could free up to 70% of crypto assets from being treated as securities.

White House and Congress support crypto bill

The rollout of the new regulations has received strong support from the White House and surprising bipartisan support from Congress.

Under President Donald Trump’s pro-cryptocurrency administration, the United States is stepping up efforts toward a cryptocurrency regulatory framework.

For example, in July Trump signed the GENIUS Act, creating the first federal regulations for stablecoins. The new law requires stablecoin issuers to hold this digital currency in reserve for every $1 of stablecoin they issue.