New York Stablecoin Requirements Demand USDT to be Transparent

New York will require stablecoins to be fully backed by assets separated from the issuer’s operational funds, according to details of a new press release.

Superintendent Adrienne A. Harris of the New York State Department of Financial Services (DFS) has made it known to the general public that stablecoins backed by the U.S. dollar will be regulated.

Her initiative laid down specific demands that must be met by stablecoin issuers who claim that their digital stablecoin is backed by the U.S. dollar.

In her words:

“Since DFS approved the first USD-backed stablecoins for issuance in New York in 2018, our regulated entities have had to meet conservative reserve requirements and provide regular attestations to protect consumers and ensure the stability of the coins issued. 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.”

What the Regulation Entails

The regulation addresses three (3) essential aspects covering backing and redemption, reserve requirements, and independent audits.

Harris demands that the stablecoin must be fully backed by reserve assets. She further explains that the market value of the reserve must be equivalent to the nominal value of all outstanding units of the stablecoin at the end of each day.

New York also requires that the stablecoin issuer must have and make public their redemption policies and strategies, which the Department must approve of Financial Services in writing. This will make it possible for stablecoin holders to redeem units of the stablecoin anytime at an equivalent value to the dollar.

Furthermore, she added that the stablecoin’s reserve must consist of the U.S. Treasury bills, which the issuer must acquire three (3) months before the respective maturation.

Also, the reserve’s repurchase agreement must be fully collateralized by the USD. The reserve must also have U.S. Treasury bonds or bills overnight, subject to DFS-approved restrictions.

Finally, the demand for independent audits provides that the reserve must be subject to a monthly examination by an independent Certified Public Accountant (CPA).

Currently, these regulations are already binding on stablecoins such as USDP, BUSD, GUSD, and ZUSD. Interestingly, USDT, the world’s largest stablecoin by market cap, and a host of other stablecoins like the USDC seem not to comply with the NYDFS requirements.