How a stablecoin differs from a bank deposit
A stablecoin is different from a bank deposit: it has no FDIC insurance, and you redeem it through its issuer instead of withdrawing at a bank.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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This guide covers what backs each balance, how you get your money out, and how the tax rules differ. You will need the issuer's redemption terms and your bank records.
Are stablecoins insured?
The FDIC covers bank deposits at insured banks up to a federal limit, so a bank failure usually leaves depositors whole. A stablecoin has no such coverage, and no federal agency pays you if it loses value.
How do you redeem or withdraw each?
You withdraw a bank deposit at your bank or an ATM, and the bank pays you. Redeeming a stablecoin usually means sending it to the issuer or selling it on an exchange, on terms that set minimums, fees, and delays. A fiat-backed issuer defends its peg with reserves such as Treasury bonds and bank deposits, and a run of large redemptions can break that peg. If the issuer fails, your claim is on its reserves, not on an insurance fund.
- 1Read the issuer's termsCheck minimums, fees, delays, and identity rules first.
- 2Verify your identityThe issuer usually asks for photo ID and may take a day to approve it.
- 3Match the address and networkUse the issuer's own instructions, or the tokens can be stranded.
- 4Send the tokensA confirmed transfer cannot be reversed, so save the transaction ID.
- 5Wait for the payoutThe issuer may take days, so watch your bank account.
What about taxes and records?
The IRS treats cryptocurrency as property, so selling a stablecoin or swapping it for another crypto can create a capital gain or loss. Interest your bank pays is taxable income. Buying a stablecoin with dollars is not a taxable event, but paying with one is.
What backs each one?
A bank deposit is a claim on your bank, which can lend your money out and must repay you. A stablecoin rests on the issuer's reserves, which may hold Treasury bonds, corporate debt, and bank deposits, or on an algorithm with little or no reserve.
Frequently asked questions
Yes. Several stablecoins have failed to hold their value, so a sale can return less than you paid.
No federal law bans them, but states set their own rules for the companies that issue or sell them.
Some centralized issuers can freeze tokens under their terms or a court order, and frozen tokens cannot be moved or redeemed while the freeze lasts.
