After what happened with the UST stablecoin, it was clear that we would see some regulation pretty soon. First, we had Japan introduce a stablecoin bill to protect investors, and now New York issues guidelines for dollar-backed stablecoins. The State Department of Financial Services of New York has given regulatory guidance to prevent any major disaster in the future. They also become the first US regulator to do so.
New York issues guidelines for dollar-backed stablecoins
There are three primary aspects of the regulation that the New York Financial Services department introduced. They are reserves, redeemability, and attestation. Let’s understand what they are all about and how investors will be protected if these are appropriately implemented.
So, coming to the reserves, the most important thing for any asset-backed stablecoin is to have that asset. For example, Tether says it’s based on the US dollar, and it has its holdings, so that must always be the case. The US regulation says that a stablecoin must be fully backed by reserves at the end of every business day.
The second point is redeemability. Since a stablecoin is supposed to be fixed in value, the issuer must allow investors to redeem them whenever they want. The new guidelines suggest that there must be a redemption policy in advance written by the DFS that gives investors the right to redeem a stablecoin for USD.
Finally, we have attestation, which means evidence or proof. There have always been concerns that Tether might not really have assets backings its stablecoins. To clear such uncertainty, a public accountant must do a monthly examination of a stablecoin’s reserves.
Not all stablecoins fall under these guidelines
Now that NY State has issued these regulatory guidelines, it doesn’t mean that all stablecoins are safe. That’s because they are applicable only to the stablecoins falling under DFS’s jurisdiction. These include Pax Dollar, Binance USD, Paxos Trust Company, Gemini Dollar, GMO-Z.com trust company, and Zytara Dollar. Since the DFS license is complicated to obtain, we might not see other stablecoins join the list.
What are your thoughts as New York issues guidelines for dollar-backed stablecoins? And do you think this will make the industry a little safer? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.
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