One of the strictest cryptocurrency regulatory regimes in the United States has approved proposals from two companies under its oversight to issue cryptocurrency tokens whose values are pegged to the U.S. dollar.
In a statement published Monday, the New York Department of Financial Services (NYDFS), creator of the “BitLicense” framework for cryptocurrency companies, confirmed that it had given two chartered companies, Gemini Trust Company and Paxos Trust Company, permission to begin issuing these so-called “stablecoins” to clients.
At present, stablecoins — the most well-known of which is tether (USDT) — are most frequently used on cryptocurrency exchanges, where they function as proxies for actual USD on platforms that do not have regulatory authorization to hold fiat currency on behalf of their clients.
However, proponents argue they can serve an even large role in international commerce, since USD-denominated transactions executed with cryptocurrency tokens can settle in seconds, versus three or more business days when using actual dollars.
Stablecoin critics have argued that these tokens has been used to manipulate the bitcoin price and facilitate other financial crimes including money laundering, which is why the NYDFS said that it only approved these two applications after receiving assurance from Gemini and Paxos that their tokens will be subjected to “effective risk-based controls and appropriate BSA/AML and OFAC controls to prevent the Gemini Dollar or Paxos Standard Token from being used in connection with money laundering or terrorist financing.”
Maria T. Vullo, superintendent of the NYDFS, hailed the development as confirmation that a “strong state regulatory framework” does not inhibit innovation in the fintech sector.
“As the financial technology marketplace continues to evolve, New York is committed to fostering innovation while ensuring responsible growth. These approvals demonstrate that companies can create change and strong standards of compliance within a strong state regulatory framework that safeguards regulated entities and protects consumers.”
CCN.com already reported that the NYDFS had approved a proposal from Gemini, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, to create a stablecoin called the Gemini dollar (GUSD).
However, Paxos — operator of institutional cryptocurrency exchange and custodial service itBit and another NYDFS charter recipient — also received approval to release a stablecoin, “Paxos Standard” (PAX).
Like GUSD, PAX is structured as an ERC-20 token on the Ethereum blockchain and is backed by physical dollars custodied in FDIC-insured U.S. bank accounts. Those reserves will purportedly allow PAX to maintain a $1.00 peg, no matter what happens in the wider cryptocurrency markets. Both tokens can be redeemed for USD from their respective issuers.
“Paxos Standard gives financial markets the power to transact in a fully USD-collateralized asset with the benefits of blockchain technology and oversight from financial regulators,” said Charles Cascarilla, CEO and co-founder of Paxos. “We believe that Paxos Standard represents a significant advancement in digital assets, leveraging the oversight and stability of the traditional financial system and enabling a frictionless global economy.”
“In the current marketplace, the biggest hindrances to digital asset adoption are trust and volatility. As a regulated Trust with a 1:1 dollar-collateralized stablecoin, we believe we are offering an asset that improves on the utility of money,” added Cascarilla.
Images from Shutterstock.
Last modified: May 20, 2020 6:01 PM UTC