Key Insights:
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New York State DFS has set clear criteria for stablecoins.
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Stablecoins should be fully backed by a reserve of assets.
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The reserves must be subject to monthly independent audits.
The New York State Department of Financial Services (NYDFS) released new guidelines on Wednesday, listing a series of rules that any stablecoin issuer in the state must abide by.
Last month, Sen. Toomey, the ranking member of the Senate Banking Committee, introduced the Stablecoin TRUST Act, which forces issuers to adhere to specific rules. The act promised financial privacy by regulating dollar-pegged stablecoins such as tether (USDT) and USD Coin (USDC).
The new DFS regulatory guidance on stablecoins is in line with the act, setting “foundational criteria” for USD-backed stablecoins issued by licensed entities.
Backed by a reserve of assets
The New York DFS first approved stablecoins pegged to the dollar in 2018. DFS authorized Paxos to offer its first asset-backed token – Paxos Standard – backed by the national currency.
Since then, DFS-regulated entities have been required to meet “conservative reserve requirements” and provide attestations to protect consumers by ensuring the stability of these digital assets, said Adrienne A. Harris, superintendent of the NYDFS. She noted,
“Leveraging our years of expertise in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.”
The key idea behind setting the guidance is to formalize both consumer protection and institutional soundness, Harris told CoinDesk in an interview.
Per the DFS rules, stablecoins must be backed by a reserve of assets whose market value is “at least equal to” that of outstanding stablecoins at the end of each day.
Rules such as the reserves should be “segregated from the proprietary assets of the issuing entity,” were also laid out.
The reserves must consist of dollars stored in four types of treasuries:
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US Treasury bills with no more than three months to maturity
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Reverse repurchase agreements collateralized by US Treasury bills
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US Treasury notes or US Treasury bonds
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Deposit accounts at US state
Additionally, stablecoin issuers must adopt “clear, conspicuous redemption policies” that are approved by the DFS in advance by writing. This approval allows lawful holders the right to redeem units of the stablecoin from the Issuer “in a timely fashion.”
The assets reserves are also subject to monthly audits by an independent certified public accountant.
The new regulatory guidance by the NYDFS is the first of its kind to be released by a US financial watchdog that sets a baseline regulatory prospect for USD-pegged stablecoins.