The New York State Department of Financial Services (DFS) put out regulatory guidance to establish the criteria for stablecoins issued under DFS oversight.
“Since DFS approved the first USD-backed stablecoins for issuance in New York in 2018, our regulated entities have had to meet conservative reserve requirements and provide routine attestations to protect consumers and ensure the stability of the coins issued,” DFS Superintendent Adrienne Harris said. “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 guidance says 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. Also, the Issuer of the stablecoin must adopt redemption policies 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. dollar.
In addition, 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. state or federally chartered depository institutions. The reserve must consist of the following assets: U.S. Treasury Bills acquired by the Issuer three months or less from their respective maturities, reverse repurchase agreements fully collateralized by U.S. Treasury bills, U.S. Treasury bonds, and deposit accounts at U.S. chartered depository institutions.
Further, the reserve must be subject to an examination of management’s assertions at least once per month by an independent Certified Public Accountant.
The DFS-regulated stablecoins to which this guidance applies are (i) the USDP and BUSD, issued by Paxos Trust Company, LLC; (ii) the GUSD, issued by Gemini Trust Company, LLC; and (iii) the ZUSD, issued by GMO-Z.com Trust Company, Inc. This will apply to any additional U.S. dollar-backed stablecoins that DFS-regulated entities seek to issue.
Paxos applauded the DFS guidance, saying they provide a strong foundation for the regulatory oversight of stablecoin issuers and tokens.
“As regulators, legislators and policymakers seek to design appropriate standards and integrate recent advances in financial technology into our economy, we would like to commend the DFS, and Superintendent Adrienne Harris, on their continued leadership in setting prudential standards for the licensing, issuance, and custody of digital assets including stablecoins. DFS’ vision has created a responsible place for innovators like Paxos to create exciting products with consumer protections always in mind. We were proudly the first DFS-regulated Trust company for digital assets and the first to achieve regulatory approval for stablecoin issuance. Paxos-issued, DFS-regulated stablecoins USDP and BUSD are the safest U.S. dollar-backed assets available today,” Paxos CEO and Co-Founder Charles Cascarilla said.
DFS is using all the regulatory tools available to keep pace with the industry, given how fast it is evolving. This includes regular engagement with industry, consumer advocates, lawmakers, and regulators.