In an effort to address consumer protection and regulatory concerns over nonbank-issued stablecoins, a coalition of American banks has organized to create its own fully regulated stablecoin.
The USDF Consortium is a group of Federal Deposit Insurance Corporation (FDIC)-insured financial institutions that was established on January 12th.
According to the statement, the consortium’s initial members are New York Community Bank (NYCB), NBH Bank, FirstBank, Sterling National Bank, and Synovus Bank. A couple of fintech firms have also joined the consortium to help with the promotion and acceptance of the new stablecoin, according to the announcement.
Stablecoins Minted by Banks
The USDF is a bank-minted stablecoin that aspires to compete or outperform existing privately issued stablecoins like Tether (USDT) and Circle’s USDC.
The new stablecoin will be created exclusively by US banks and will be redeemable for cash from member institutions at a 1:1 ratio, according to the announcement. The goal is to provide “greater consumer protection” than unregulated stablecoins, according to the consortium.
USDF will run on the public Provenance Blockchain, an enterprise proof-of-stake network created in May 2021 by the Provenance Foundation, a business headquartered in San Francisco, California.
Mike Cagney, CEO of Figure Technologies, commented on the possible use cases for decentralized finance, saying, “USDF opens up unlimited opportunities for the expanding world of DeFi transactions.”
NYCB’s Chief Digital and Banking as a Service Officer, Andrew Kaplan, added:
“As a kind of digital currency established and operated by licensed US institutions in the USDF Consortium, USDF will enable widespread usage of an on-chain, real-time payments system that satisfies important principles of safety and soundness, anti-money laundering compliance, and financial stability.”
The release did not specify how many stablecoins would be coined in the first batch or when they would be made available to users who will need to comply with KYC/AML requirements before opening a wallet.
Several anti-crypto lawmakers lambasted stablecoins late last year, arguing that they pose a risk to the US economy.
Outlook for the Ecosystem
According to CoinGecko, there are presently $170 billion in stablecoins in circulation, with a 24-hour trading volume of roughly $60 billion. This amounts to approximately 7.8 percent of the total crypto market capitalisation at the time.
According to the firm’s transparency report, Tether is still the biggest stablecoin, with 78.5 billion USDT in circulation. Tether now has a 46 percent market share, a statistic that has been continuously falling despite the regular fresh token mints. Since the same period last year, tether supply has surged by 223 percent.
USDC is the second-largest stablecoin, with a circulating supply of 44.1 billion and a market share of 26%. Binance’s BUSD comes in third place with 14.1 billion tokens, accounting for 8.3 percent of the stablecoin market. According to CoinGecko, Terra USD (UST) has surpassed DAI for fourth place with a current supply of 10.5 billion.