- Caroline D. Pham, the Acting Chairman of the CFTC has announced the agency’s plan this week
- Members from the crypto circle have shown support to including crypto as collateral in the derivatives market
- The CFTC has invited feedback on the planned step until October 20
Amid the ongoing policy overhaul in the U.S., digital assets are being considered as acceptable collateral in the derivatives market. Through the move, the CFTC is aiming to bring more utility value to digital assets like stablecoins, which subsequently could bridge the gap between crypto sector and traditional finance.
The derivatives market is where financial contracts like futures, options, forwards, and swaps, that derive their value from underlying assets like a commodity, stock, or interest rate. The derivatives market essentially lets investors speculate on the future price movements of these underlying assets or giving them the option to hedge against risks without directly owning the assets.
Caroline D. Pham, the Acting Chairman of the Commodity Futures Trading Commission (CFTC) announced the development calling it part of the government’s ongoing crypto sprint initiative.
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“CFTC launches tokenized collateral and stablecoins initiative with industry partners. It’s the killer app to modernize markets and make dollars work smarter and go further, unleashing U.S. economic growth by lowering costs,” Pham noted. She also tagged digital assets players Circle, Coinbase, Crypto.com, Tether, and Ripple on the update.
If implemented, stablecoins like USDC and USDT will qualify as collaterals similar to traditional options like cash or US Treasurys in regulating derivatives trading.
Commenting on the development, Coinbase chief legal officer Paul Grewal said the move could put the U.S. ahead of the global competition in the derivatives market.
“Really exciting to see @CFTC put together this initiative to modernize the market by increasing efficiency, reducing costs, and upping liquidity to the benefit of all,” Grewal posted.
Circle President Heath Tarbert seconded Grewal lauding the move.
“The GENIUS Act creates a world in which payment stablecoins issued by licensed American companies can be used as collateral in derivatives and other traditional financial markets. Using trusted stablecoins as collateral will lower costs, reduce risk, and unlock liquidity across global markets 24/7/365,” Tarbert noted.
The CFTC has invited feedback on the planned step until October 20.
The U.S. is also mulling to include crypto as accepted collateral for property purchases. The JPMorgan bank is also planning to let clients borrow against crypto holdings.
