The New York Department of Financial Services (NYDFS) has published a formal guidance for stablecoins in the state, laying out strict demands for issuers around asset reserves.
The new rules, released on Wednesday, are targeted at licensed crypto firms that issue stablecoins. According to NYDFS, all stablecoins – most of which are pegged to the US dollar – should be fully backed and adhere to monthly independent audits carried out by a certified public accountant.
Liquidity for redemptions
Terra’s collapse last month has undoubtedly shone a spotlight on the stablecoin market, and that looks to have a clear reflection in NYDFS’ guidance.
TerraUSD, an algorithmic stablecoin that had over 80,000 bitcoins in reserve and billions in other assets, collapsed dramatically after depegging from the US dollar. The losses to investors were massive.
So, to help protect consumers, the agency wants the reserve assets backing every stablecoin held separate from the issuer’s operational funds, and to be fully redeemable by investors.
To ensure liquidity for redemptions, the regulator wants to see reserves held in US Treasury bills, and specifically, those with not exceeding the three month maturity rate. The issuers will also have to put reserves in US Treasury notes, bonds or other such other assets allowed under the new regulations.
New rules apply to BitLicense holders
According to NYDFS Superintendent Adrienne Harris, the new rules apply to companies that currently hold the state’s BitLicense as well as the limited purpose trust charter. They will also be applicable to any company seeking to issue fiat-backed stablecoins in the jurisdiction.
She told CNBC in an interview that the guidance aims at providing a “transparent” and “clear” message to the marketplace about what is expected. She added that while the financial watchdog has regulated the “space for a long time,” the fast nature of the market’s evolution means they have to keep pace.
New York introduced the BitLicense in 2015 and has granted the license to several crypto firms, including USD Coin (USDC) issuer Circle Internet Financial, Inc.
Gemini Trust Company, LLC (Gemini dollar (GUSD)) and Paxos Trust Company, LLC (Paxos Standard (PAX)) hold limited purpose trust charters.
The largest stablecoin by market capitalization is Tether (USDT), which over the years has faced multiple questions regarding its reserves. The company’s recent attestation claimed all the USDT in circulation were backed by reserves.
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