Stablecoins just lost key battle as insurance protection to be reserved only for bank-issued tokens

FDIC Chair Travis Hill indicated that payment stablecoins regulated under the GENIUS Act will likely not qualify for pass-through deposit insurance, while tokenized deposits that meet the legal definition of a deposit will retain the same insurance treatment as traditional bank accounts. This distinction creates a two-tier system for on-chain dollars: payment stablecoins will operate without federal insurance protection, potentially shifting the competitive balance toward banks offering insured, tokenized deposits. Banks are concerned stablecoins could erode their deposit base, potentially costing them $500 billion by 2028 if adoption accelerates. While stablecoins retain advantages in open-network usability, global reach, and composability, tokenized deposits will likely dominate institutional settlement and regulated asset markets due to their existing deposit insurance framework. The final market segmentation will depend on whether the insurance advantage of tokenized deposits outweighs the network advantages of stablecoins.

(Source：CryptoSlate)