On June 8, 2022, New York’s Department of Financial Services (DFS) provided guidance on the issuance of U.S. dollar-backed stablecoins. In the guidance, DFS addressed three topics concerning U.S. dollar-backed stablecoins—redeemability, reserve requirements, and independent audits once a month by an independent CPA firm.
Regarding redeemability, DFS requires that the stablecoin is fully backed by a Reserve of assets. This means that the market value of the reserve is at least equal to the nominal value of all outstanding units of the stablecoin at the end of each business day. Additionally, the issuer of the stablecoin must adopt “clear, conspicuous redemption policies” that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the issuer in a timely fashion at par for the U.S. dollar. These policies must be approved, in writing and in advance, by DFS. Further, as it relates to the phrase “timely fashion,” the policies must disclose their interpretation of “timely” and the required timeline to meet the timely redemption requirement.
Regarding the reserve requirements, DFS requires that the assets within the Reserve are segregated from the proprietary assets of the issuing entity. Further, DFS requires that the assets in the Reserve are held in custody with U.S. state or federally chartered depository institutions. Below is a list of required assets that the Reserve must consist of:
- 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 over-collateralization;
- Deposit accounts at U.S. state or federally chartered depository institutions, which are subject to DFS-approved requirements.
Lastly, the DFS guidance provides that the Reserve is subject to an examination of management’s assertions at least once per month. The audit must be completed by an independent Certified Public Accountant who is licensed in the U.S. and applies the attestation standards of the American Institute of Certified Public Accountants.