The US Commodity Futures Trading Commission has provided new guidance on tokenized collateral in derivatives markets, initiating a pilot program to explore the use of cryptocurrencies as collateral in these markets.
In derivatives markets, collateral acts as a security deposit, ensuring that a trader can cover any potential losses.
The digital asset pilot, announced by CFTC acting chairman Caroline Pham on Monday, permits futures commission merchants (FCM)—firms that facilitate futures trades for clients—to accept Bitcoin (BTC), Ether (ETH), and Circle’s stablecoin USDC (USDC) as margin collateral.
The CFTC pilot represents progress toward incorporating crypto into regulated markets, with Circle CEO Heath Tarbert remarking that it will enhance customer protection, decrease settlement friction, and aid in risk management.
Pham stated that the pilot program “establishes clear guardrails to safeguard customer assets and enhances CFTC monitoring and reporting.”
Through this pilot, participating FCMs will face stringent reporting requirements, including weekly updates on total customer holdings and any critical issues that could impact the use 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 released updated guidance regarding the use of tokenized assets as collateral in futures and swaps trading.
This guidance encompasses tokenized real-world assets, including US Treasury money market funds, alongside discussions on eligible tokenized assets, legal enforceability, and segregation and control arrangements.
Pham remarked in a Monday X post that the “guidance provides regulatory clarity and allows for the addition of more digital assets as collateral by exchanges and brokers, beyond US Treasurys and money market funds.”
The Market Participants Division also issued a “no-action position” concerning specific requirements related to the utilization of payment stablecoins as customer margin collateral and the retention of certain proprietary payment stablecoins in segregated customer accounts.
A CFTC Staff Advisory that limited FCMs’ capacity to accept crypto as customer collateral, Staff Advisory 20-34, was retracted as it is “outdated and no longer applicable,” partly due to the GENIUS Act.
Crypto execs back CFTC move
Numerous crypto executives praised the CFTC’s initiative.
Katherine Kirkpatrick Bos, general counsel at blockchain firm StarkWare, stated that utilizing “tokenized collateral in the derivatives markets is MASSIVE.”
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“Atomic settlement, transparency, automation, capital efficiency, savings. Feels abrupt but who recalls the tokenization summit in 2/24, a glimmer of hope in the darkness,” she noted.
Coinbase chief legal officer Paul Grewal also endorsed the action, describing Staff Advisory 20-34 as a “concrete ceiling on innovation.”
“It relied on outdated info, exceeded regulatory bounds, and impeded the goals of the PWG.”
Salman Banaei, general counsel at the layer-1 blockchain Plume Network, commented that it was a “major move” by the CFTC, furthering the push for broader adoption.
“This is a step toward utilizing on-chain infrastructure to automate settlement for the largest asset class globally: OTC derivatives, swaps,” he elaborated.
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