Last month, the Terra accident broke out. Next, the focus shifted to stablecoins. Many have called for regulatory control over these altcoin projects. On Wednesday, a step towards stablecoin regulation in the form of regulatory guidance came from a New York regulator.
Key criteria set for regulating these altcoin projects
New York State Department of Financial Services (DFS) superintendent Adrienne Harris has published a new regulatory guide on this topic. The guide sets out the key criteria for USD-backed stablecoins issued by DFS regulated entities. On the matter, Harris made the following statement:
DFS approved the first USD-backed stablecoins for issue in New York in 2018. Since then, our regulated entities have had to provide routine validations to meet prudent reserve requirements, protect consumers, and ensure the stability of issued cryptocurrencies.
explained that the guide establishes criteria for virtual currency companies looking to issue USD-backed stablecoins in New York. Against this backdrop, the direction of stablecoin’s full support for an asset reserve is highlighted in the regulatory guidance. To give an example of stablecoins: Tether (USDT), Binance USD (BUSD), USD Coin (USDC). We can also add the crashed Terra USD (USDT) to these.
“Reserve assets required to support all stablecoins”
The prepared guideline set the criteria for regulation of such altcoin projects. The first of these criteria involves the tokens being fully backed by an asset reserve. This means that the market value of the reserve is at least equal to the face value of all pending units of the stablecoin.
Further, reserve assets must be clearly distinguished from proprietary assets of the issuing entity. More importantly, assets must be held in custody with US state or federally authorized custodians and/or asset custodians.
The guide also outlined the various types of assets to be kept in reserve. US treasury bills, reverse repurchase agreements are allowed, subject to conditions. The Guide states:
The Reserve should be subject to a monthly review of management’s claims by an independent Certified Public Accountant.
As you have seen in the news of Cryptokoin.com , the Terra (LUNA) collapse has seriously damaged the market. It is now intended to ensure that events such as the Terra (LUNA) collapse do not recur. For this, the framework also mandates regular review of the reserve.
The intent of the guide will apply to stablecoins that are generally backed by the Dollar. In addition, the guide aims to reveal the basic requirements in this context. This regulatory framework will only apply to New York-based entities. However, this precedent can be replicated elsewhere.
