The NYS Department of Financial Services announced on Monday the authorization of the Paxos Standard and Gemini dollar, which will become the first regulated stablecoins fully backed by the US Dollar.
First Regulated Stablecoins
In a press release the NYSDFS stated that as part of the approval process the Gemini Trust Company and Paxos Trust Company face strict reporting guidelines and procedures. To ensure compliance both issuers must implement risk control procedures to prevent money laundering or terrorist financing, post terms and conditions regarding forfeiture for legal violations and maintain policies to resolve customer complaints.
In a statement NYSDFS Superintendent Maria T. Vullo said:
“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.”
The main goal of these coins is to address the volatility and trust issues currently plaguing crypto assets, which have made them poor substitutes for money. These coins are designed to be exchanged in a 1:1 ratio to the US dollar, thus preserving purchasing power and eliminating the volatility inherent in holding digital assets. Additionally, the issuers are regulated custodians and are required to hold funds in an account with FDIC insurance.
Both the Gemini Dollar and Paxos Standard will run on the ERC20 protocol and can be transferred to any wallet that is running on the Ethereum network. Transfers between digital assets will be instantaneous and the benefit is a US dollar backed store of value without incurring the transaction fees or long settlement times associated with converting to fiat.
The regulatory approval of these stablecoin products represent a crucial step in the innovation of digital assets. These products are NOT long term investments or places to seek yield and should not be viewed as such. They are simply a trusted bridge between fiat and digital currency providing stability during times of volatility. Although future use cases may come in the form of instantaneous global exchange. The real breakthrough here is the acknowledgement of trust from traditional financial authorities.
Dan is an analyst and contributor for the TD Ameritrade Network where he covers financial markets and the economy. He has held series 7 and 63 securities license and started off as a equity and equity derivatives rep for the trading platform thinkorswim. He holds an MBA from St. Bonaventure University and a B.S. in Finance.