The US Commodity Futures Trading Commission has released updated guidance regarding tokenized collateral in derivatives markets, setting the stage for a pilot program to explore the use of cryptocurrencies as collateral in these markets.
In derivatives markets, collateral functions as a security deposit, ensuring that traders can cover potential losses.
The digital asset pilot, announced by CFTC acting chairman Caroline Pham on Monday, will enable futures commission merchants (FCM)—companies that facilitate client futures trades—to accept Bitcoin (BTC), Ether (ETH), and Circle’s stablecoin USDC (USDC) for margin collateral.
The CFTC pilot represents a significant stride toward integrating crypto into regulated markets. Circle CEO Heath Tarbert stated that it would enhance customer protection, decrease settlement frictions, and aid in risk reduction.
Pham remarked in a statement that the pilot program also “establishes clear guardrails to protect customer assets and provides enhanced CFTC monitoring and reporting.”
Participating FCMs in the pilot will be required to adhere to strict reporting criteria, which includes weekly reports on total customer holdings and any significant issues impacting the usage 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 released updated guidance regarding the use of tokenized assets as collateral in futures and swaps trading.
The guidance pertains to tokenized real-world assets, including US Treasury’s money market funds, and addresses eligible tokenized assets, legal enforceability, segregation, and control arrangements.
Pham mentioned in an X post on Monday that the “guidance provides regulatory clarity and opens the door for more digital assets to be added 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 the use of payment stablecoins as customer margin collateral and the holding of certain proprietary payment stablecoins in segregated customer accounts.
A CFTC Staff Advisory that limited FCMs’ ability to accept crypto as customer collateral, Staff Advisory 20-34, has been withdrawn as it is “outdated and no longer relevant,” partly due to the GENIUS Act.
Crypto execs back CFTC move
Multiple crypto executives have commended the CFTC’s decision.
Katherine Kirkpatrick Bos, the general counsel at blockchain firm StarkWare, stated that the introduction of “tokenized collateral in the derivatives markets is MASSIVE.”
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“Atomic settlement, transparency, automation, capital efficiency, savings. It feels sudden, but who recalls the tokenization summit in 2/24, a glimmer of hope in the darkness,” she remarked.
Coinbase chief legal officer Paul Grewal also endorsed the action, 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, the general counsel at layer-1 blockchain Plume Network, commented that this was a “major move” by the CFTC, signaling further steps toward greater adoption.
“This is a step toward utilizing onchain infrastructure to streamline settlement for the largest asset class in the world: OTC derivatives and swaps,” he added.
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