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NY stablecoin issuers Gemini, Paxos have to ensure 100% reserves daily under new guidelines

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The New York City Department of Financial Services (DFS), which oversees regulated crypto companies in the state, on June 8. came out the official guide for issuers of USD-backed stablecoins.

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DFS has set requirements, standards, and controls for stablecoins issued in New York since 2018. This includes requirements for the redemption of stablecoins, reserves backing stablecoins, and attestation of such reserves. These guidelines currently apply to USDP and Binance USD (BUSD) Paxos Trust Company, GUSD issued by Gemini, and ZUSD issued by GMO-Z.com.

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Importantly, the new rules only apply to USD-pegged stablecoins issued by regulated entities in New York that are overseen by the DFS.

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Under the new rules, stablecoins must be 100% backed by reserves at the end of each business day. However, the approved list of assets that can be used as reserves is limited to US Treasury bills, repurchase agreements, fully collateralized Treasury bills, bills or bonds, government money market funds, and cash deposits. DFS also has the authority to set limits on the amount of reserves that may be held in certain approved assets.

The guidelines also state that reserves should be segregated from stablecoin issuers’ own holdings. In addition, reserves must be held in a US state or federal custodial institution, with deposits insured by the Federal Deposit Insurance Corporation (FDIC) or with DFS-approved asset custodians.

Stablecoin issuers are also required to receive monthly and yearly confirmations of their reserves from approved chartered public accountants in accordance with the new rules. Gemini, Paxos, and other stablecoin issuers will also be required to provide these attestation reports to the DFS and the public.

The most important requirements outlined in the guidelines include the ability to redeem stablecoins.

Stablecoin issuers must adopt a “clear and visible redemption policy” that will allow investors to buy back their assets at any time. This means that stablecoin issuers must ensure that all redemption requests are processed within two business days of receiving the request. However, DFS may extend the repayment period under certain circumstances.

Paxos noted in a tweet that it already complies with these rules and that other issuers should follow suit.

DFS, where deemed necessary, may impose additional requirements on stablecoin issuers.

Gemini, Paxos and GMO-Z.com have three months to comply with the rules.

Stablecoin regulation on the rise after the UST crisis

The move follows countries such as South Korea, Japan, and the UK that have developed their own rules for stablecoins since the collapse of Terra-LUNA. This week, even the US introduced a cryptocurrency bill.

In early May, the algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar. Its child token, LUNA, which was supposed to help UST maintain the peg, began to decline shortly thereafter, leading to the complete collapse of the ecosystem.

During the crisis, the prices of all major cryptocurrencies plummeted, and investors lost millions. 45 billion dollars was destroyed market capitalization of TerraUSD and LUNA during the week.

Because of the sheer scale of disruption, stablecoins are getting all the attention from regulators. In South Korea, lawmakers have proposed a self-regulatory system to oversee the listing and delisting of cryptocurrencies on exchanges. Japan has passed a stablecoin bill to provide investor protection, while the UK has proposed amending existing laws to bring stablecoins into the realm of regulation.





Credit : cryptoslate.com

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