Deposit insurance and other government protections reduce the risk of banking instability but create the potential for moral hazard and other problems. The challenge for bank supervisors is to ensure the safety and soundness of banking institutions - that is, to minimize moral hazard and to protect the deposit insurance fund - without inhibiting economically valuable activities or technological innovation by banks.
Issuers of stablecoins promise to deliver stable value of a crypto-based asset by backing these with safe assets from the traditional monetary system – e.g. US dollar assets. The business model of a stablecoin can thus be likened to that of a bank deposit, only that stablecoins are based on crypto technology, and – for now - lack proper regulation and deposit insurance.