Digital Dollars & Stablecoins
How are stablecoins different from bank deposits?
Both stablecoins and bank deposits represent dollars, but they work very differently behind the scenes. The main differences are in how your money is stored, who controls access to it, how it is protected, and how quickly it can move.
Where does your money actually go?
When you deposit money in a bank, the bank does not keep all of it in a vault waiting for you. Banks lend out most of the money their customers deposit. They use it to fund mortgages, business loans, and other financial activities. This is called fractional reserve banking. It means the bank only keeps a fraction of your deposit on hand at any given time.
With a fully backed stablecoin like USDC, the reserves that back each dollar are held in cash and short-term US Treasury securities at all times. If every person holding USDC came to redeem their dollars at the same time, the money would be there.
Who controls access to your money?
With a bank, the bank controls access to your account. You need the bank's system to be working in order to move or withdraw your money. Banks can also freeze accounts, delay transactions, or restrict access for regulatory or internal reasons.
With stablecoins, access depends on how you hold them. If you hold them through a custodian, access works similarly to a bank. But if you hold them in self-custody, you control access directly. No company or institution can freeze or move your funds.
What protects your money?
In some countries, bank deposits are protected by government insurance. In the United States, for example, the FDIC insures deposits up to $250,000 per account. But in many other countries, no such protection exists. Banks have collapsed around the world and depositors have been left with no way to recover their savings.
Stablecoins do not have government deposit insurance. Your protection comes from the reserves backing the stablecoin, the regulation and auditing of the company that issues it, and the way you choose to hold it.
Can you access your money at any time?
Banks operate during business hours and transactions can take time to process. International transfers through banks can take days and come with significant fees. Banks can also impose withdrawal limits or delays.
Stablecoins move on blockchains, which operate 24 hours a day, 7 days a week. Transfers settle in seconds or minutes regardless of the time of day, the day of the week, or where in the world the sender and receiver are located.
What to read next
What is a blockchain and how does it work?