Last week, the Kansas City Federal Reserve published an article exploring the potential cost of stablecoin insurance, which was found to be considerably higher than bank deposit insurance. It showed the average annual cost of insurance across four un-named stablecoins was 3.2% per year since 2019. However, for the last year the cost would have been under 1% or 100 basis points. This contrasts with FDIC insurance on banks of between 2.5 to 42 basis points. Our observation is that this level of insurance is affordable for stablecoin issuers.
In other words, the average four-year stablecoin insurance cost is almost eight times the most expensive bank deposit insurance. However, the cost has dropped considerably. So, over the past year it would have been closer to two times the most expensive FDIC insurance.
The authors employed option pricing for the calculations. For banks the three inputs are their assets, liabilities and the volatility of their assets. They used similar equivalents for stablecoins.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
