Circle proposes new capital-risk framework for Stablecoins
In July 2024, Circle became the first stablecoin issuer to comply with the European Union’s Markets in Crypto Assets regulatory framework.
Circle, the issuer of the Circle-United States dollar (USDC) stablecoin, recently published a whitepaper, titled Risk-based Capital for Stable Value Tokens, proposing a new risk-based capital management model for stablecoins and other digital cash tokens.
The authors of the paper argue that stablecoins need adequate capital reserve requirements that go beyond the current capital standards established under the Basel banking regulatory frameworks to mitigate risks unique to stablecoins, other fiat-equivalent tokens, and the issuers of the tokens.
According to the authors, these unique risks include but are not limited to, shortfalls in the price of the tokens due to market trading and the prevalence of secondary markets, ensuing “runs” on the digital tokens due to excessive selling, operational risks, and technological risks.
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Author: Vince Quill
