Circle proposes new capital-risk framework for stablecoins

In July 2024, Circle became the first stablecoin issuer to align with the European Union’s Markets in Crypto-Assets (MiCA) regulatory framework. Circle, known for issuing USD Coin (USDC), introduced a new white paper titled “Risk-based Capital for Stable Value Tokens,” which proposes a novel capital management model for stablecoins and similar digital assets.

The paper advocates for enhanced capital reserve requirements that exceed current Basel banking standards to address risks specific to stablecoins, such as market price fluctuations, secondary market activities, and operational and technological risks.

Token Capital Adequacy Framework (TCAF) The proposed Token Capital Adequacy Framework (TCAF) aims to address the unique challenges faced by stablecoin issuers by adopting a dynamic, risk-sensitive model. Unlike traditional banking regulations that use fixed-ratio standards, TCAF emphasizes stress-testing reserves and incorporates input from stakeholders. It also accounts for technological risks, including blockchain performance and cybersecurity.

TCAF may lead to varying capital requirements based on the risk environment, offering a more flexible approach than existing banking regulations.

Key Goals of TCAF

1. Identify Risks: Differentiate between emerging risks and those that have been mitigated.

2. Support Supervisors: Aid in managing operational risks while avoiding complex risk management structures.

3. Establish Standards: Provide a consistent risk management framework across different jurisdictions and institutions.

4. Promote Accountability: Ensure incentives and accountability to mitigate adverse risk impacts.

Circle’s framework is designed to improve the stability and resilience of stablecoins, aligning with regulatory standards while addressing their unique risks.

source: https://cointelegraph.com/news/arbitrum-dao-arb-token-staking-governance-upgrade