CFTC Launches Pilot Program To Test Crypto Collateral In US Derivatives Markets

The US Commodity Futures Trading Commission (CFTC) has launched a pilot program to allow certain cryptos, namely Bitcoin (BTC), Ethereum (ETH), USD Coin (USDC) and other payment stablecoins, to be used as collateral in US derivatives markets. 

The program, which was announced by the regulator’s Acting Chair Caroline Pham, is part of the CFTC’s broader mission to give market participants clear rules for using tokenized collateral.

Pham said that the pilot program “establishes clear guardrails to protect customer assets and provides enhanced CFTC monitoring and reporting.”

Under the program, futures commission merchants (FCMs) that meet certain criteria will be allowed to participate. These firms will be able to accept BTC, ETH and payment stablecoins as collateral for futures and swaps. 

Announcement of new pilot program (Source: CFTC)

The FCMs will also have to adhere to strict reporting requirements. This includes weekly reports related to total customer holdings as well as any significant issues that may affect the use of crypto as collateral.

CFTC Working To Bring “Golden Age” For US Innovation And Crypto

In a statement, Pham stressed the need for US regulators to work towards “America’s Golden Age of Innovation and Crypto,” pointing to the recent losses that users have suffered on non-US crypto exchanges. 

“Americans deserve safe US markets as an alternative to offshore platforms,” she said. 

Her statement refers to crypto platforms that were forced outside of the US due to regulatory pressure from the Joe Biden administration and former Securities and Exchange Commission (SEC) Chair Gary Gensler. 

Since pro-crypto Donald Trump entered the White House for a second term in January, regulators and government have eased the pressure on companies operating in the digital asset space. This follows Trump’s pledge to make the US the crypto capital of the world. 

CFTC Issues Guidance On Tokenized Assets, Withdraws Outdated Requirements

In addition to allowing BTC, ETH, and payment stablecoins to be used as collateral on select platforms, the CFTC has also issued guidance on tokenized collateral and withdrawn guidance that it says is outdated. 

The updated guidance issued by the regulator covers tokenized real-world assets (RWAs), which includes US Treasury money market funds and securities. It also covers topics such as eligible tokenized assets, legal enforceability, segregation and control arrangements.

In the announcement, the CFTC added that it has withdrawn older guidance from 2020 that has effectively blocked the use of collateral in many cases. The regulator said that this guidance is outdated, especially after the GENIUS Act, which updated the federal rules around digital assets, was signed into law in July. 

Crypto Executives Support The CFTC’s Move

Several executives in the crypto space have celebrated the CFTC’s recent move. 

Among those executives is StarkWave general counsel Katherin Kirkpatrick Bos, who said that the use of “tokenized collateral in the derivatives markets is MASSIVE.” 

“Atomic settlement, transparency, automation, capital efficiency, savings. Feels abrupt but who recalls the tokenization summit in 2/24, a glimmer of hope in the darkness,” she added. 

Coinbase’s legal chief Paul Grewal also applauded the CFTC for withdrawing the regulator’s Staff Advisory 20-24 guidance, which he called a “concrete ceiling on innovation.”

Meanwhile, Plume Network general counsel Salman Banaei said that the CFTC’s move “is a step toward the use of onchain infra to automate settlement for the biggest asset class in the world: OTC derivatives, swaps.”