The Federal Deposit Insurance Corporation is developing a more lenient framework for encryption assets.

The Federal Deposit Insurance Corporation (FDIC) is developing a more lenient and transparent framework for U.S. banks to engage in encryption asset activities, including the use of public, permissionless blockchains.

Recently, FDIC Acting Chairman Travis Hill elaborated on the agency's evolving stance on encryption-related activities at a banking industry summit.

Public Blockchain User Guide

A key area under review by the FDIC involves the interaction between regulated banks and public, permissionless blockchains. Hill acknowledged that while other countries have allowed banks to use public chains for many years, U.S. regulators have been more cautious.

The FDIC now believes that a complete ban on the use of public blockchains is too strict, but it still emphasizes the need for appropriate safeguards. The agency is evaluating existing guidance to establish enduring standards for the responsible use of public networks.

Regulators are also considering whether public chains can operate in a permissioned model. Hill stated that there is a need to evaluate how to define and regulate blockchain configurations that blur the boundaries between open and permissioned environments.

Further Guidance

The FDIC plans to issue more guidance on specific digital asset use cases. The agency will continue to assess issues related to the scope of encryption-related activities, regulatory treatment of blockchain-based products, and risk management expectations.

The broader goal is to establish a consistent and transparent regulatory framework that promotes innovation while ensuring compliance with safe and sound standards.

Hill recently pointed out that the revised guidelines by the FDIC represent a fundamental shift in how the U.S. banking system treats encryption assets and blockchain technology. The agency has rescinded the previous requirement for regulated entities to notify before engaging in digital asset and blockchain activities.

Stablecoin Regulation and Deposit Insurance

Hill also discussed the emerging issues surrounding stablecoins, particularly the legislative trends proposed by Congress. The FDIC is reviewing potential updates to deposit insurance regulations to clarify the eligibility requirements for stablecoin reserve deposits. Key issues being evaluated include liquidity risk management, safeguards against illicit finance, and cybersecurity standards.

The FDIC is considering whether to further clarify the boundaries of activities allowed in this area or to expand regulatory guidance to cover more use cases.

Tokenized Deposits and Smart Contract Risks

Hill emphasized the need for clearer regulatory treatment of tokenized real-world assets and liabilities (including tokenized commercial bank deposits). The FDIC believes that "regardless of the technology or record-keeping method used, a deposit is a deposit."

However, he expressed concern about whether counterparties can use smart contracts to withdraw funds at face value after the bank's collapse, which may increase liquidation costs. The FDIC is evaluating technological solutions to prevent unexpected outflows of funds in bank resolution scenarios.

Hill pointed out that the challenge lies in aligning on-chain programmability with traditional regulatory protections aimed at ensuring the orderly liquidation of failing institutions.

These changes indicate that the FDIC is moving towards providing regulatory clarity for banks exploring digital asset infrastructure, while emphasizing the need for cautious risk control and further clarity on permitted activities.