FASB proposes criteria for recognizing stablecoins as cash equivalents

QWhat did the Financial Accounting Standards Board (FASB) propose regarding stablecoins?

AFASB proposed guidance on when companies can classify certain stablecoins as cash equivalents under US Generally Accepted Accounting Principles (GAAP). This includes adding illustrative examples to the existing definition and clarifying accounting for digital assets like stablecoins.

QAccording to the FASB's proposal, what are the two key criteria for a stablecoin to be classified as a cash equivalent?

ATo be classified as a cash equivalent, the stablecoin must: 1) Provide the holder with a contractual right to redeem it for a predetermined amount of cash directly from the issuer, and 2) Have underlying reserves held in short-term, highly liquid assets in a 1:1 ratio.

QWhy does the existence of an active secondary market not automatically qualify a stablecoin as a cash equivalent, according to FASB's examples?

ABecause the holder does not have a direct right of redemption from the issuer. Classification as a cash equivalent requires a direct contractual claim on the issuer, not just the ability to sell the asset on a secondary market.

QWhat types of reserve assets would prevent a stablecoin from being classified as a cash equivalent under the new guidance?

AReserves consisting of other cryptoassets or gold would prevent classification. This is due to the valuation risks associated with these assets, which do not meet the required standard of being short-term, highly liquid assets.

QWhat is the next step for FASB's proposed guidance, and what will determine the final effective date?

AFASB is accepting public comments on the proposed update until November 19. The organization will determine the effective date of the final amendments after considering the feedback received from stakeholders.