Stablecoin Issuance

KSTEchLaw assists clients with creation and issuance of collaterized stablecoins – blockchain tokens that are pegged to stable assets, like U.S. dollar or gold.

Unlike classic digital currencies, such as Bitcoin or Ethereum, stablecoins are often pegged 1:1 to a physical asset, which is maintained in custody off-chain and can presumably be claimed and redeemed in lieu of the stablecoin. This is designed to provide for the coin’s stability as opposed to the volatility of digital currencies that are not backed by collateral.

Helping Clients Navigate Through Legal Requirements Related to Stablecoins

Because off-chain collateralized stablecoins are pegged to fiat currency or other assets held in reserve, such stablecoins are often referred to as a digital representation of the fiat currency or other off-chain asset.

The dual nature of stablecoins creates additional level of structuring and compliance. On one hand, stablecoins are deployed on blockchain and enjoy the benefits of the global decentralized technology. On the other hand, maintaining stablecoins’ collateral requires custodial, banking, licensing, audit and other arrangements under control of trusted centralized parties.

Guiding Clients Through the Process of Issuing and Maintaining Stablecoins

Our lawyers advise clients regarding the full lifecycle of a stablecoin. Our stablecoin services include:

• Advice on the design, issuance and trading of stablecoins in compliance with U.S. federal and state laws and regulations;

• Advise on licensing requirements and obtaining the necessary licenses, such as Money Services Business (Money Transmitter License or MTL), New York BitLicense and other state licenses, Limited Purpose Trust Company (licensing requirements will depend on a client’s business model/arrangements with licensed third parties);

• Client representation in establishing relations with major licensed and regulated trustees/custodians, banks and auditors;

• Advise on KYC/AML policies and procedures;

• Drafting, reviewing and negotiating trust, custodial, technology services and other agreements with third-party providers;

• Advise and assistances in relation to stablecoin listings on digital currency platforms.

Resources:

1. Department of Financial Services. Information and Resources for Virtual Currency Business Activity (BitLicense).
2. Department of Financial Services. DFS Continues to Foster Responsible Growth in New York’s Fintech Industry with New Virtual Currency Product Approval.
3. Official Portal for North Dakota State Government. Securities Commissioner Issues Order Against Union Bank Payment.
4. Harward Law School Forum on Corporate Governance and Financial Regulation. Stablecoins.
5. Harward Case Study. The State of Stablecoins – Why They Matter and Five Use Cases.