The U.S. Commodity Futures Trading Commission (CFTC) has released updated guidance on the use of tokenized collateral in the derivatives market, paving the way for a pilot program to test how cryptocurrencies can be used as collateral in the derivatives market.
In the derivatives market, collateral is equivalent to margin, serving as a guarantee to ensure that traders can cover any potential losses.
CFTC Acting Chair Caroline Pham announced on Monday that the digital asset pilot will allow futures commission merchants (FCMs)—companies that facilitate futures trading for clients—to accept Bitcoin, Ethereum, and Circle's stablecoin USDC as margin collateral.
This pilot by the CFTC is another step towards incorporating crypto into regulated markets. Circle CEO Heath Tarbert stated that it will also protect customers, reduce settlement friction, and help mitigate risk.
Caroline Pham stated in a release that the pilot also "establishes clear guardrails for protecting customer assets and provides stronger CFTC oversight and reporting."
As part of the pilot, participating FCMs will be subject to strict reporting standards, requiring weekly reports on total customer asset holdings and any significant issues that may affect the use of crypto as collateral.
The CFTC's Market Participants Division, Market Oversight Division, and Clearing and Risk Division also released updated guidance on using tokenized assets as collateral in futures and swap transactions.
The guidance covers tokenized real-world assets, including money market funds backed by U.S. Treasury securities, and addresses topics such as qualified tokenized assets, legal enforceability, segregation, and control arrangements.
Caroline Pham stated in a post on the X platform on Monday that the "guidance provides clarity for regulation and opens the door for exchanges and brokers to incorporate more digital assets as available collateral beyond U.S. Treasury securities and money market funds."
The Market Participants Division also issued a "no-action position" regarding the use of payment stablecoins as customer margin collateral and specific requirements for holding certain proprietary payment stablecoins in segregated customer accounts.
The CFTC staff advisory Staff Advisory 20-34, which restricted FCMs' ability to accept crypto as customer collateral, has also been withdrawn, as it was deemed "outdated and no longer relevant," partly due to the GENIUS Act.
Several executives in the crypto industry have praised the CFTC's move.
Katherine Kirkpatrick Bos, General Counsel of blockchain company StarkWare, stated that the impact of using "tokenized collateral" in the derivatives market is massive.
"Atomic settlement, transparency, automation, capital efficiency, cost savings. It seems sudden, but who remembers the tokenization summit on 2/24? That was a glimmer of hope in the dark," she said.
Coinbase Chief Legal Officer Paul Grewal also expressed support for the initiative, stating that Staff Advisory 20-34 was an "innovative concrete ceiling."
"It relied on outdated information, far exceeded regulatory boundaries, and undermined the goals of the PWG."
Salman Banaei, General Counsel of Layer-1 blockchain Plume Network, stated that this is a "significant move" by the CFTC and another step towards broader adoption.
"This is a step towards leveraging on-chain infrastructure to achieve settlement automation for the world's largest asset class—OTC derivatives and swaps," he added.
Related: Coinbase states that Bitcoin (BTC) is expected to recover in December due to 'macro tailwinds' and Federal Reserve rate cuts.
Original: “CFTC Pilot Program Opens the Door for Crypto Assets as Collateral in Derivatives Markets”
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