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As stablecoins continue to gain ground in global finance, a fundamental legal and regulatory question has emerged: Are stablecoins bank deposits?  This isn’t just a matter of classification or semantics – it affects how stablecoin issuers are regulated, how users are protected, and who is allowed to operate in this fast-evolving sector.

Yet, the question of what constitutes a deposit is not a new one and predates crypto innovation.  In the UK and EU, the legal distinction between deposits and electronic money (e-money), for instance, has led to a proliferation of bank-like financial technology (FinTech) firms that hold customer money without being treated as bank deposits, despite being repayable at par e.g. firms like Wise, Revolut, and Tide.  So, why is there a contentious debate about the treatment of stablecoins? 

But first…

What is a Stablecoin?

A stablecoin is a cryptocurrency or digital asset designed to maintain a stable value, typically pegged to the value of a fiat currency or a basket of assets. They come in various forms, including fiat-backed stablecoins like USDC and USDT (backed by reserves held in bank accounts or government securities), crypto-collateralized stablecoins like DAI (backed by overcollateralized crypto assets), and algorithmic stablecoins (which use supply-demand mechanisms to maintain their peg, though often with instability, as seen with the collapse of TerraUSD).

The question of whether stablecoins are deposits relates only to fiat-backed stablecoins, as these most closely resemble traditional money instruments. They are typically backed by reserves held in bank accounts or short-term (i.e. liquid) government securities.

Stablecoins aim to combine the speed, programmability, and borderlessness of crypto with the stability of fiat currencies. They’re often used for payments, trading, lending, and remittances, or as a store of value. But this hybrid nature has raised regulatory questions, particularly around how to classify and supervise them.

What is a Bank Deposit?

In general, a bank deposit is defined as money placed with a bank, with an obligation to repay, at par, either on demand or at an agreed time in future. The precise legal definition can vary by jurisdiction, but deposits are repayable claims against a bank that uses the funds for its own account, often in lending or investments.

The activity of accepting deposits is a tightly regulated activity usually reserved for licensed banks.

Stablecoins vs Deposits

At first glance, fiat-backed stablecoins resemble deposits: holders exchange fiat for digital token which is redeemable at par.  However, key differences exist, for example, most stablecoin issuers do not engage in lending activity; instead, they hold the fiat they receive in custodial accounts or short-term government bonds.  

Like bank deposits, which represent a claim on the issuing bank, stablecoins represent a claim on its issuer.  However, since most stablecoin issuers are not banks (although this may be set to change as traditional banks enter the space), this raises concerns about the enforceability of those claims in the event of an issuer’s insolvency, especially as stablecoins are not covered by deposit insurance schemes – such as the FDIC in the US, the NDIC in Nigeria, or the FSCS in the UK – leaving holders exposed to potential losses. 

Due to these structural differences, regulators have been hesitant to treat stablecoins as deposits. Still, classification depends on design and marketing. If an issuer receives fiat, promises repayment, and offers the service to the public, it risks being seen as accepting deposits without a license.

Stablecoins vs Electronic Money

In the EU and UK, electronic money (e-money) provides a more appropriate regulatory analogy than deposits. Under the EU’s E-Money Directive and the UK’s Electronic Money Regulations 2011, e-money is a monetary value stored electronically and represents a claim on the issuer. Like fiat-backed stablecoins, e-money is issued in exchange for fiat, and is redeemable at par value at any time.  

Critically, e-money issuers must safeguard user funds, usually through segregation in a trust account or an insurance guarantee, and they cannot lend those funds, unlike deposit-taking banks.

Does Classification Matter? 

Treating stablecoins as bank deposits would have major implications. Only licensed banks would be able to issue them, shutting out most FinTechs and crypto-native firms like Tether and Circle.

This would bring far stricter capital, liquidity, and compliance requirements, while in return offering deposit insurance cover.  But in this instance, the business model of stablecoin issuers would be radically different as they would be able to trade with the funds on their own account, thus exposing them to significantly greater risks.

Classifying stablecoins as e-money, by contrast, imposes lighter regulation but still ensures full reserve backing, asset safeguarding, and redemption rights.

So, Are Stablecoins Bank Deposits?

The short answer is No, stablecoins are not deposits. Just because your money is safeguarded by a third party and is repayable does not make it a deposit. After all, e-money is precisely such an example that is not considered a deposit. There are others too, such as money market funds, commercial paper, and so on, where repayable/redeemable funds are kept with others without becoming deposits.  

If you take the analogy further, there are many other types of entities that safeguard money but are not considered deposit-takers (i.e. banks), such as payment platforms (e.g. PayPal), stockbrokers (e.g. IG), and even coffee shops (e.g. Starbucks).  

What makes something a deposit is not whether it is repayable, but what can be done with the funds. Where the entity holding the funds (i.e. the issuer) can trade with them on their own account, these are deposits. It follows, therefore, that where the issuer is forbidden from trading with the funds and must instead safeguard them in segregated accounts, these are not deposits.

As such, stablecoins that are fully backed and redeemable functionally resemble e-money far more than bank deposits and, logically so, their legal and regulatory treatment should be akin to e-money, not deposits.  

Thankfully, this is the approach taken by the EU’s Markets in Crypto-Assets Regulation (MiCA), which treats stablecoins that are pegged to a single fiat currency as a new category of e-money, the E-Money Token (EMT), with similar obligations to e-money for safeguarding and redemption. The UK is following suit, bringing fiat-backed stablecoins under the oversight of the Bank of England and the Financial Conduct Authority (FCA). In Singapore, under the Payment Services Act, stablecoins may qualify as e-money if they are backed by fiat currencies and redeemable.  Issuers are required to safeguard user funds, but are not considered deposit-taking institutions.

MiCA also introduces a separate category for stablecoins backed by a basket of assets, including commodities, multiple fiat currencies, or other crypto assets – these are called Asset-Referenced Tokens (ARTs).  While MiCA treats ARTs as a distinct class of asset, it treats EMTs merely as an extension of the existing e-money concept.

Looking ahead

Stablecoins represent a new frontier in the evolution of money, sitting at the intersection of traditional finance and digital innovation.  By combining the stability of fiat currencies with the efficiency of blockchain technology, they offer a compelling alternative for payments, remittances, and on-chain financial services.

Whether stablecoins are classified as deposits is ultimately a legal and policy choice – not just a technical question. Regulating them as e-money strikes the right balance, allowing innovation and competition while protecting users through reserve, redemption, and transparency requirements.

As stablecoins become increasingly embedded in the global financial infrastructure, clear legal frameworks are essential. These decisions will shape not just how stablecoins are regulated, but the broader architecture of digital money for years to come.

Olu Omoyele is the founder & CEO of DeFi Planet.  Chain of Thoughts is his monthly column on the cryptoverse.

Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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