The US Commodity Futures Trading Commission has released new guidance regarding tokenized collateral in derivatives markets, setting the stage for a pilot program aimed at exploring how cryptocurrencies can function as collateral in these markets.
In derivatives markets, collateral acts as a security deposit, ensuring that a trader can absorb any potential losses.
The digital asset pilot, announced by CFTC acting chairman Caroline Pham on Monday, will enable futures commission merchants (FCM) — entities that facilitate futures trades for clients — to accept Bitcoin (BTC), Ether (ETH), and Circle’s stablecoin USDC (USDC) as margin collateral.
This CFTC pilot marks another stride towards integrating crypto into regulated markets, with Circle CEO Heath Tarbert stating that it will help safeguard customers, minimize settlement frictions, and aid in risk management.
Pham noted in a statement that the pilot program also “establishes clear guardrails to protect customer assets and provides enhanced CFTC monitoring and reporting.”
As part of the pilot, participating FCMs will have to adhere to strict reporting standards, including weekly summaries of total customer holdings and any major issues that may affect the utilization of crypto as collateral.
Updated CFTC guidance for tokenized assets
The CFTC’s Market Participants Division, Division of Market Oversight, and Division of Clearing and Risk have also issued revised guidance on utilizing tokenized assets as collateral in futures and swaps trading.
This guidance encompasses tokenized real-world assets, including US Treasury money market funds, as well as topics such as eligible tokenized assets, legal enforceability, and segregation and control arrangements.
Pham mentioned in a post on X that the “guidance offers regulatory clarity and paves the way for more digital assets to be included as collateral by exchanges and brokers, alongside US Treasurys and money market funds.”
The Market Participants Division has also issued a “no-action position” regarding specific requirements for using payment stablecoins as customer margin collateral and for holding certain proprietary payment stablecoins in segregated customer accounts.
Additionally, a CFTC Staff Advisory that limited FCMs’ capacity to accept crypto as customer collateral, Staff Advisory 20-34, has been rescinded because it is considered “outdated and no longer applicable,” partly due to the GENIUS Act.
Crypto execs back CFTC move
Katherine Kirkpatrick Bos, general counsel at blockchain company StarkWare, declared that the adoption of “tokenized collateral in derivatives markets is MASSIVE.”
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“Atomic settlement, transparency, automation, capital efficiency, savings. Feels sudden but who remembers the tokenization summit in 2/24, a beacon of hope in the shadows,” she remarked.
Coinbase chief legal officer Paul Grewal also endorsed the initiative, calling Staff Advisory 20-34 a “concrete ceiling on innovation.”
“It relied on outdated information, exceeded regulatory bounds, and hindered the objectives of the PWG.”
Salman Banaei, general counsel at layer-1 blockchain Plume Network, asserted that this constitutes a “major move” by the CFTC, contributing to broader adoption.
“This is a step towards leveraging onchain infrastructure to automate settlements for the largest asset class globally: OTC derivatives and swaps,” he added.
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