- The NYDFS yesterday published its first stablecoin guidelines
- Any stablecoin providers opening in the state must be backed and not rely on an algorithm
- The guidelines have been issued in the wake of the Terra USD scandal
The New York Department of Financial Services (NYDFS) yesterday published its first stablecoin-specific guidance, proposing a series of requirements that any stablecoin issuer operating in the state must abide by. The NYDFS, which oversees regulated crypto companies in the state, is urging that stablecoins traded in the state of New York should be fully backed by certain assets, with these assets held separate from operational funds and regularly audited. This would discount algorithmic stablecoins such as Terra USD from operating, with the NYDFS citing consumer protection as its chief goal.
Stablecoin Issuers Must Prove Backing
Stablecoins have long been a thorny issue for regulators, but the Terra USD collapse, which wiped out the life savings of many around the world, has brought the issue to the forefront of the legislative agenda. Because of this, the NYDFS wants all stablecoin issuers operating in the state to prove they have the financial backing to merit their market cap, rather than relying on untested algorithms of market dynamics to keep the peg afloat.
NYDFS Superintendent Adrienne Harris told CoinDesk in an interview that, indeed, the Terra incident had pushed them to act:
“As we think about stablecoins and this guidance, and this is something we have been working on before the events of last month, really our goal is to accomplish those things for the stablecoin market, the safety and soundness of institutions, stability of the marketplace and consumer protection.”
Tether May be Better Positioned Than Others
According to the new NYDFS guidance, stablecoins must be backed by a reserve composed of:
- U.S. Treasury bills with no more than three months to maturity
- U.S. Treasury notes
- Some types of U.S. Treasury bonds or reverse repurchase agreements that are collateralized by Treasury bills
One of the biggest concerns for some in the crypto world is Tether, whose market cap has dropped some $9 billion since the Terra scandal, with questions continually asked of its backing. However, the fact that it already provides the Office of the New York Attorney General with updates about its backing and the office has not once raised any objections, it may actually be that it is better placed than many to accede to such demands.