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FASB Stiffens Stablecoin Accounting Rules: Redemption Right Required
FASB unveiled a three-part test for stablecoins to qualify as cash equivalents. On-demand redemption rights and segregated reserves in short-term liquid assets are required. Public comments are due by November 19.
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The Financial Accounting Standards Board wants to change how companies classify stablecoins on their balance sheets. The proposed test is tighter than many in crypto expected.
FASB laid out a three-part requirement. A stablecoin must carry an on-demand contractual redemption right. Holders must have a direct line to the issuer – not a secondary buyer – to swap the token for a known cash amount. The token must also be backed by one-to-one segregated reserves held in short-term, highly liquid assets.
Hit all three, and a company might classify the stablecoin as a cash equivalent under U.S. generally accepted accounting principles. Miss one, and it doesn't qualify.
Secondary-market liquidity alone won't work. You cannot argue that a stablecoin trades freely on exchanges and therefore functions like cash, the board said. The holder must have a direct contractual hook with the issuer – a real, enforceable redemption right, not just the ability to sell to someone else at roughly a dollar.
A lot of companies holding stablecoins have relied on the assumption that liquid markets are effectively the same as liquidity with a counterparty. FASB said no. If you cannot call the issuer and demand your dollars back on the spot, you are not holding a cash equivalent.
The reserves question is just as sharp. Stablecoins backed by crypto assets or gold are out. Those assets carry valuation risk that short-term Treasuries or similar instruments do not, the board said. A reserve that can swing 10% overnight is not the same as one that holds its value. FASB wants stability in the backing, not just a peg that might hold.