- New York’s financial services regulator has issued new guidance on stablecoins, laying out its expectations from issuers operating in the state
- Stablecoins are to be fully backed by a reserve of assets equal to the face value of each stablecoin unit while remaining ready for redemption for US dollars at all times
US dollar-backed stablecoins traded in the state of New York are now required to meet enhanced conservative reserve requirements, the jurisdiction’s financial services regulator said in newly issued guidance on Wednesday.
Under the guidance, the New York Department of Financial Services (NYDFS) has laid out a set of baseline criteria necessary for stablecoin issuers, operating under the agency’s purview, to meet.
The collapse of the TerraUSD ecosystem has put multiple regulators, both in the US and abroad, on notice, resulting in ad-hoc regulation in a bid to curb further potential market instability.
Stablecoins must be “fully backed” by a reserve of assets which must be equal to the face value of each individual unit by the end of each business day, the regulator said in a statement.
“The issuer of the stablecoin…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 US dollar,” the guidance reads.
Those assets must be separate from the stablecoin issuer’s daily operational funds and must be held in custody with a US state or federally chartered depository institution or asset custodian.
That should be fine for issuers such as Circle, which attests its USDC is fully backed by dollar deposits and short term US Treasurys, and therefore redeemable for US dollars, in stark contrast to Terra’s failed algorithmic approach.
Following the guidance, an independent Certified Public Accountant is expected to verify the issuer’s claims once a month to ensure their stablecoins are backed by what they say they are.
NYDFS’ regulatory guidance does not apply to US dollar-backed stablecoins listed, but not issued, by regulated entities under its watch, the agency said.
It’s the latest string of tightening regulations surrounding this class of cryptoassets whose values are generally pegged 1:1 to fiat currencies or commodities like gold.
On Friday, Japan passed its own investor protection bill, establishing a legal framework for stablecoins to be linked to the yen or other legal tender while granting holders the right to redeem them at face value.
The UK is also exploring ways to sharpen the teeth of its primary financial regulator when it comes to oversight of electronic money and payments, in a bid to protect consumers from what the country sees as potential payment firm insolvencies, following Terra’s downfall.
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