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US bank consortium to release private stablecoin

By Robert Davis

19:11, 12 January 2022

Stablecoin in front of stock market display
Crypto moving towards increased credibility - Photo: Shutterstock

A consortium of US banks announced on Wednesday they are forming a partnership to develop a bank-minted stablecoin.

The group includes banks such as the New York Community Bank, NBH Bank, FirstBank, Sterling National Bank, Synovus Bank, Figure Technologies and JAM FINTOP. They plan to add more participating banks to their membership roster throughout the year as well.

Removing friction from the financial system

Known as USDF, the group said its stablecoin is being minted "to remove friction from the financial system” and open up new financial opportunities using blockchain and distributed ledger technology.

Stablecoins are some of the very few cryptocurrencies that are backed by a reserve asset such as oil or gold. This set-up also makes stablecoins more attractive for everyday use than other assets like bitcoin because stablecoins don't experience the same severe price fluctuations. This means that stablecoins can act as a reliable medium of exchange in the digital sphere. 

Stablecoin issuers also have a financial incentive to create and distribute the assets. Issuers make money through a process known as seigniorage, which is the net revenue derived from introducing new money into an economy. The success of an issuers seigniorage is primarily determined by their issuing mechanichs and network growth, which also makes seigniorage a key metric for investors who are deciding whether or not to back a stablecoin project. 

“USDF opens up endless possibilities for the expanding world of (decentralised finance) transactions, Figure CEO Mike Cagney said in a statement. “The ease and immediacy of using USDF for on-chain transactions was demonstrated this fall when NYCB minted USDF used to settle securities trades executed on Figure's alternative trading systems.”

Federal support

The announcement comes one day after Federal Reserve chair Jerome Powell told lawmakers in the US Senate Banking Committee that stablecoins can exist within the federal monetary policy framework.


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When asked by lawmakers whether the central bank would preclude well-regulated, private stablecoins, Powell responded succinctly, “No. not at all.” He later added that stablecoin companies can expect a report on the asset from the central bank in the coming weeks.

Powell’s statement stands in opposition to a growing trend from central banks around the globe to outlaw cryptocurrencies and stablecoins altogether.

For example, India’s central bank has waffled over adopting cryptocurrencies while China’s central bank has outlawed them completely.

More regulations, please

Powell’s testimony is also likely to be well-received by cryptocurrency executives who have been calling for more regulations for more than a year.

In December 2021, several crypto chief executives went to Capitol Hill to ask lawmakers to create more consistent regulations for the industry.

“We need clear standards and the government's support to create a new, more secure, more competitive financial system," Charles Cascarilla, CEO and co-founder of Paxos Trust, said in his opening remarks. “The benefits of getting this right are enormous — but so are the consequences of getting it wrong.”

Read more: Ahead of confirmation, Fed’s Powell fettered by familiar foe

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