On Wednesday, the New York State Department of Financial Services released new guidelines regarding licensed cryptocurrency firms that issue stablecoins. These rules call for monthly independent audits and reserve requirements. The regulations arrive in the wake of Terra Luna’s massive price plunge.
Stablecoins are cryptocurrencies whose value is pegged to one unit of a particular fiat currency. In other words, one unit of this stable coin should always be worth, for example, 1 USD. It’s a premise on which many transactions on the crypto market occur. Furthermore, crypto users have sown a willingness to keep their savings in stablecoins. Recent events have created major doubts regarding the regularization of some of these coins.
Current holders of BitLicense (the business license for virtual currency companies operating in New York State) will be affected directly by the guidance. Also, this affects limited-purpose trust charterholders who issue stablecoins. The implications, naturally, ultimately stretch far beyond NYC’s jurisdiction. Calls for a greater vetting process of crypto projects that issue stablecoins have been ongoing.
What will the additional stablecoin regulations mean for crypto adopters?
The guidance outlines requirements regarding redemption, reserves, and attestation. These guidelines state that a stabelcoin must have full backing at the end of each business day. The issuer must also have a written redemption policy approved by the DFS that allows the holder to redeem the stablecoin in U.S. dollars.
The reserves of the issuer must be kept separate from its proprietary assets. They should consist of U.S. Treasury securities or deposits at federally or state-chartered institutions. A certified public accountant must examine the reserve monthly.
In recent months, regulators have focused on stablecoins because of the perceived lack of transparency surrounding trading these virtual assets and their reserves backing them. Market participants also depend on them to allow trading in other crypto protocols.
TerraUSD, the Terra network’s dollar-pegged stablecoin, suffered a meteoric decline last month. It is this that likely has caused the extra degree of scrutiny from regulators.