![]() Treasury bonds on an overnight basis, subject to DFS-approved requirements concerning overcollateralization, and Deposit accounts at U.S. Treasury Bills acquired by the Issuer three months or less from their respective maturities, Reverse repurchase agreements fully collateralized by U.S. The Reserve must consist of the following assets: U.S. state or federally chartered depository institutions and/or asset custodians. The assets in the Reserve must be segregated from the proprietary assets of the issuing entity and must be held in custody with U.S. The issuer of the stablecoin (the “Issuer”) must adopt clear, conspicuous redemption policies, approved in advance by DFS in writing, that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the Issuer in a timely fashion at par for the U.S. The stablecoin must be fully backed by a Reserve of assets, meaning that the market value of the Reserve is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day. The guidance focuses on three main pillars: (1) backing and redeemability, (2) reserve requirements and (3) independent audits. The guidance from the New York Department of Financial Services (NYDFS) will directly apply to stablecoins issued by Gemini and Paxos, which are both Trust companies regulated by the NYDFS, while Circle and Tether operate under different structures and are not under the purview of the NYDFS. In the United States, the state of New York - which earlier had forced Tether, the stablecoin giant, into providing more disclosures about its reserves - has already introduced guidance on stablecoin issuance. Stablecoin issuers need to continue to improve practices in order to meet escalating scrutiny and standards. This article will focus on the regulatory developments in the United States and make the case that USD stablecoin issuers do not currently fully meet preliminary regulatory standards. Meanwhile, the Council of the European Union has also reached an agreement on the markets in crypto-assets (MiCA) proposal that introduces stringent requirements for stablecoin issuance, including a possible cap if payment volumes exceed a certain threshold.Īll eyes are now on the United States, which now has draft stablecoin legislation in both the Senate and the House of Representatives. Japan’s parliament has already passed a law that enshrines the definition of stablecoins as well as provides standards for investor protection. Some countries are farther along than others. At a supranational level, the Financial Stability Board (FSB) was compelled to release a statement that cautioned: “The recent turmoil in crypto-asset markets highlights the importance of progressing ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets, including so-called stablecoins.” Lawmakers and regulators around the world have been racing to craft rules and regulations for stablecoins, and the recent collapse of the Terra UST algorithmic stablecoin has served as a tailwind to push the agenda forward.
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