Under the DFS’ regulatory guidance, stablecoin issuers will have to fully back their tokens with reserve assets like U.S Treasury bills, notes, and bonds.

The New York State Department of Financial Services (DFS) has announced new regulatory guidance for the issuance of stablecoins pegged to the U.S. dollar in the state, a press release unveiled.

These guidelines will apply to all DFS-regulated stablecoin issuers. At the moment, these include Gemini Trust Company, Paxos Trust Company, and GMO-Z.com Trust Company.

The requirements for stablecoin issuers in New York include backing tokens fully with reserve assets. Per DFS, the market value of the reserve assets should be equal to the number of outstanding tokens at the end of each business day.

Additionally, the guidelines stipulate that issuers must separate reserve assets from their proprietary assets. Stablecoin issuers will have to hold their reserve assets with U.S. state or federally chartered depository institutions and/or asset custodians.

Reserve assets must comprise U.S. Treasury bills that mature within three months, Reverse repurchase agreements that are fully collateralized by U.S. Treasury bills, U.S. Treasury notes, and/or U.S. Treasury bonds, and Deposit accounts at U.S. state or federally chartered depository institutions.

On top of this, stablecoin issuers within New York must embrace clear, conspicuous redemption policies. DFS must sign off the redemption policies beforehand. This requirement would enable stablecoin holders to redeem their holdings at par with the U.S. dollar.

Moreover, stablecoin issuers must have an independent Certified Public Accountant (CPA) conduct audits on their reserves at least once a month. The CPA must be licensed in the U.S. and apply the attestation standards of the American Institute of Certified Public Accountants (AICPA).

Spearheading Crypto Regulation

According to DFS Superintendent Adrienne A. Harris, the DFS has been dealing with stablecoins since 2018. She added that the agency has had to meet conservative reserve requirements and offer regular attestations to protect consumers while ensuring the stability of issued tokens.

Harris continued:

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.

Through the regulatory guidance, New York has become the first U.S. state to introduce stricter stablecoin regulations since Terra USD (UST-X) imploded. While New York has issued stablecoin issuance guidelines, the U.S. is yet to decide how it plans to regulate the space.

Previously, Senator Patrick Toomey introduced the Stablecoin Transparency of Reserves and Uniform Safe Transactions (Stablecoin TRUST) Act of 2022. The bill referred to stablecoins as “payment stablecoins” – digital assets that the issuer can directly convert into fiat currencies and have a stable value relative to a fiat currency.