New York Crypto Regulator Issues Stablecoin Regulatory Guidance

The New York Department of Financial Services (NYDFS), which oversees crypto regulations in the state, published its first stablecoin guide Wednesday laying out clear guidelines in order to successfully own or issue a stablecoin in the empire state. 

The NYDFS also took to Twitter to publish their announcement. 

“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,” said Superintendent Adrienne A. Harris and author of the regulatory guidance. 

The guidance went over three sections in detail: redeemability, reserves and independent audits. 

First, the stablecoin must be backed by a reserve of assets, meaning that the market value of the reserve is at least equal to the value of the outstanding units at the end of each business day. In addition, the issuer must adopt clear redemption policies approved in advance by the DFS in writing. In other words, any holder of the stablecoin will have the right to redeem the stablecoin for its U.S. dollar equivalent in a timely fashion. 

Second, the reserve assets must be separate 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 notes, and/or U.S. Treasury bonds on an overnight basis, subject to DFS-approved requirements concerning overcollateralization, and Deposit accounts at U.S. state or federally chartered depository institutions, subject to DFS-approved restrictions,” the press release said. 

Third, the reserve is subjected to an independent audit at least once per month by an independent Certified Public Accountant (CPA) licensed in the United States and applying the standards of the American Institute of Certified Public Accountants (AICPA). 

“The purpose of this regulatory guidance is to set forth baseline requirements that will generally apply to stablecoins backed by the U.S. dollar that are issued under DFS oversight,” the press release said. 

As a result of the regulatory guidance, there are now four stablecoins in which this guidance applies to: USDP and BUSD, issued by Paxos Trust Company, LLC; GUSD, issued by Gemini Trust Company, LLC; and  ZUSD, issued by GMO-Z.com Trust Company, Inc. It is only these four, because these four were issued in the state of New York, thus making it under the jurisdiction of this guidance. 

This regulatory guidance comes as regulatory talks are heating up across the globe in relation to crypto. It also comes as a response to the devastating collapse of the algorithmic stablecoin, TerraUSD (UST), that saw the former third-largest stablecoin by market cap depeg from $1 and drop down to less than $0.10 in three days. It continued its downward spiral to where it currently sits at $0.012. 

The May 9 collapse of UST, now known as TerraClassicUSD (USTC), sparked discussion worldwide about regulating crypto to keep consumers safe. Even U.S. Treasury Secretary Janet Yellen spoke briefly about the collapse when speaking at a Senate banking hearing in May.  

The U.S. regulatory framework on crypto is in its infancy, but it is sure to ramp up, especially after President Biden’s March executive order that called for a “whole-of-government strategy” when dealing with digital assets. 

Author: Tyler Irvin

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