U.S. Regulatory Approval Received for two U.S. Dollar-Pegged “Stablecoins”

On September 10, 2018, the New York State Department of Financial Services (“NYDFS”) announced its approval of two “stablecoins”: the Gemini Dollar offered by Gemini Trust Company LLC (“Gemini”) and the Paxos Standard offered by Paxos Trust Company LLC (“Paxos”).

What Are Stablecoins?

Stablecoins are crypto assets that peg their value against a perceived stable asset (e.g., fiat currencies, gold or silver) with the intent of reducing the price volatility that conventional cryptocurrencies, such as Bitcoin, may experience.  The value of the Gemini Dollar and the Paxos Standard is pegged to the U.S. dollar.

Conditions For Regulatory Approval

NYDFS regulatory approval for the Gemini Dollar and the Paxos Standard was contingent on Gemini and Paxos each meeting certain requirements designed to protect consumers and prevent the use of the Gemini Dollar and the Paxos Standard from being used for money laundering or terrorist financing.  These requirements include:

  • ensuring that each authorized Gemini Dollar and Paxos Standard is fully exchangeable for a U.S. dollar, with conditions to ensure monitoring and recordkeeping; and
  • implementing, monitoring and updating effective anti-money laundering controls and risk-based controls to prevent and respond to any potential or actual fraudulent use of the Gemini Dollar or the Paxos Standard, including any illegal activities, market manipulation or other similar misconduct.

In addition, both Paxos and Gemini may have their trust company charters revoked by the NYDFS, among other regulatory and/or enforcement actions, for failing to comply with any of the provisions in the NYDFS’s approval.

Implication for Canada

While stablecoins alone are unlikely to eliminate the price volatility observed in cryptocurrency markets, they may broaden the use and acceptance of cryptocurrencies, and consequently, increase liquidity in cryptocurrency markets.  With the Gemini Dollar and the Paxos Standard receiving regulatory approval in the U.S., there may be increased interest in Canada for stablecoins.

For more information about our firm’s Fintech expertise, please see our Fintech group’s page.

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