Stablecoin Holders Won’t Be Protected If Reserves Fail — Even With FDIC Insurance

Individual stablecoin holders have no direct claim on reserve assets if a permitted payment stablecoin issuer (PPSI) fails — even though those reserves may be held in FDIC-insured deposits. The FDIC’s proposed rule, issued April 7 under the GENIUS Act, mandates that PPSIs fully back all outstanding stablecoins with reserves in U.S. currency or short-term Treasury bills. Those reserves, when held in bank deposits, are insured up to $250,000 — but only as corporate deposits of the issuer. There is no pass-through insurance to the individuals holding the stablecoins. That means if the issuer collapses, stablecoin holders are unsecured creditors with no priority access to the underlying reserves. The rule also requires PPSIs to demonstrate they can redeem stablecoins within two business days and maintain capital and liquidity appropriate to their risk profile. At the same time, the FDIC confirmed that tokenized deposits — regardless of underlying distributed ledger technology — qualify as insured deposits under the Federal Deposit Insurance Act. Yet the protection ends at the corporate level. The move comes as the IMF warned in an April 2 report that stablecoins, like money market funds, can appear stable until confidence breaks — at which point their structural vulnerabilities can accelerate financial crises.