The US Commodity Futures Trading Commission has released new guidance regarding tokenized collateral within derivatives markets, setting the stage for a pilot program aimed at exploring the use of cryptocurrencies as collateral in these markets.
In derivatives markets, collateral acts as a security deposit, ensuring that traders can meet potential losses.
The digital asset pilot, announced by CFTC acting chairman Caroline Pham on Monday, will enable futures commission merchants (FCM)—companies that facilitate futures transactions for clients—to accept Bitcoin (BTC), Ether (ETH), and Circle’s stablecoin USDC (USDC) as margin collateral.
The CFTC pilot marks a further step towards incorporating cryptocurrency into regulated markets, and Circle CEO Heath Tarbert indicated it will protect customers, diminish settlement frictions, and aid in risk mitigation.
In a statement, Pham mentioned that the pilot program will “establish clear guardrails to safeguard customer assets and enhance CFTC monitoring and reporting.”
Participating FCMs in the pilot will adhere to stringent reporting standards, necessitating weekly updates on total customer holdings and any major issues that could influence the use of cryptocurrency 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 provided updated guidance regarding the use of tokenized assets as collateral in futures and swaps trading.
The guidance addresses tokenized real-world assets, such as US Treasury money market funds, alongside considerations like eligible tokenized assets, legal enforceability, and segregation and control measures.
Pham remarked in an X post on Monday that the “guidance provides regulatory clarity and allows for more digital assets to be accepted as collateral by exchanges and brokers, in addition to US Treasurys and money market funds.”
The Market Participants Division also announced a “no-action position” regarding specific requirements for the use of payment stablecoins as customer margin collateral and the retention of certain proprietary payment stablecoins in segregated customer accounts.
A CFTC Staff Advisory which previously limited FCMs’ capacity to take crypto as customer collateral, Staff Advisory 20-34, has been rescinded as it is deemed “outdated and no longer relevant,” partly due to the GENIUS Act.
Crypto Executives Support CFTC Initiative
Katherine Kirkpatrick Bos, the general counsel at StarkWare, a blockchain company, stated that the move to utilize “tokenized collateral in the derivatives markets is MASSIVE.”
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“Atomic settlement, transparency, automation, capital efficiency, savings. It feels abrupt, but who remembers the tokenization summit in February? A glimmer of hope in the darkness,” she added.
Coinbase chief legal officer Paul Grewal also endorsed the actions, referring to Staff Advisory 20-34 as a “concrete ceiling on innovation.”
“It relied on outdated information, overstepped regulatory bounds, and hindered the PWG’s objectives.”
Salman Banaei, general counsel at the Plume Network, a layer-1 blockchain, stated that this represents a “major move” by the CFTC, advancing the cause of broader adoption.
“This is a significant step toward integrating on-chain infrastructure to automate settlements for the largest asset class globally: OTC derivatives and swaps,” he emphasized.
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