Tokenized Deposits: How I Learned to Stop Worrying and Love Stablecoins

Publication Title

Review of Banking and Financial Law,

Document Type

Article

Publication Date

2023

Abstract

Stablecoins are crypto assets sold on the promise or understanding that they are redeemable for fiat at par. Most stablecoin issuers, like banks and money market funds, engage in maturity transformation and are subject to run. One suggestion for addressing stablecoins’ inherent risks is to insure their value. This article examines whether stablecoins meet the policy rationales undergirding government deposit insurance and/or could be insured under the Federal Deposit Insurance Act. It finds that insuring stablecoins deposited with banks would not fulfill the policy rationales for deposit insurance, and although insuring stablecoins issued by banks would, they are not insurable under federal law. This article further finds that deposit insurers would face operational challenges in implementing an insurance program, and that incorporating public blockchains into the national payments system could be detrimental in a variety of ways. This article concludes that the only stablecoins that address the myriad concerns are tokenized deposit stablecoins—digital representations of traditional bank deposits—traded over private, permissioned blockchains, they appear to be no better than the existing payment system.

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External Links

SSRN

Recommended Citation

Todd Phillips, Tokenized Deposits: How I Learned To Stop Worrying and Love Stablecoins, 42 Rev. Banking & Fin. L. 897 (2023).

DOI

10.2139/ssrn/4152735

Volume

42

Issue

2

First Page

897

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