New York's financial services department unveiled new regulations for the licensing of cryptocurrency firms on Wednesday. Among the requirements are monthly audits and reserve requirements.
Current holders of BitLicense and those who issue stablecoins backed by fiat currencies are affected by the new regulations.
The department noted that stablecoins should be fully backed by their assets, and they should be able to be redeemed by investors. It also laid out various requirements for the firms that issue them, such as having an independent auditor regularly monitor their operations.
Due to the lack of transparency surrounding the trading of stablecoins, regulators have been focusing on this type of virtual asset. They also noted that its users rely on it to support other crypto protocols.
In New York we always go big, so I’m going to take my first THREE paychecks in Bitcoin when I become mayor. NYC is going to be the center of the cryptocurrency industry and other fast-growing, innovative industries! Just wait!
— Eric Adams (@ericadamsfornyc) November 4, 2021
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Avoiding another Terra
The sudden rise and collapse of the Terra network's stablecoin, TerraUSD, has raised concerns about the potential risks associated with this type of virtual asset.
Unlike the other cryptocurrencies discussed by New York regulators, TerraUSD is not a single-entity digital asset backed by a single fiat currency. Instead, it's a decentralized algorithm designed to operate on its own. The saga surrounding TerraUSD has raised the profile of this type of virtual asset and tarnished the industry's image.
In an interview with CNBC's "Crypto World," New York State's financial services department official, Adrienne Harris, said that the department is now making stablecoins more transparent. Harris noted that the department is also working with the industry to ensure that these types of virtual assets can be issued and operated safely and responsibly.
"We're now making it transparent and making clear to the marketplace that these are expectations for our stablecoin issuers across the board," Harris said. "The DFS has been regulating the space for a long time, but it's a fast-evolving and fast-moving space ... so it's incumbent upon us as a prudential regulator to make sure we are keeping pace with the innovation in that space."
Harris wants seamless, open system
The department's guidance on stablecoins is part of Harris's ongoing effort to improve the operations and technology of the virtual currency businesses that it oversees. The department's transformation initiative, known as the VOLT, aims to address various issues faced by the firms it licenses.
As the industry continues to evolve, the superintendent of the financial services department said she's committed to improving the agency's operations and technology. Harris noted that she's working with the department's technology team to upgrade its systems and hire more talent.
Despite Harris's progress in her six months on the job, many people are still concerned about New York's potential to become a center for the crypto industry.
Critics of the department also believe that New York could lose its talent to other tech hubs such as Austin, Texas, and Miami due to the state's efforts to establish a crypto-forward regulatory framework. However, Harris noted that the demand for the department's BitLicenses has not decreased.
"Half of venture capital investment in the cryptocurrency space in 2021, was in New York-based and regulated companies," Harris said. "So we see that having clear rules of the road, having rigorous regulation attracts companies and attracts talent in New York. And that's our job, to make sure that we have those protections in place and that we want that talent and those companies to be here under that rubric."