Stakeholders and investors may not always have access to relevant information about digital assets shared within a market.
Digital assets can be anything of value that is stored and transferred electronically through digital platforms. For example, bitcoin is a digital asset used for online purchases, trading, and sending money to family, friends or clients.
Other digital assets include asset-backed tokens, which may tie to physical property like real estate or art, and fiat-pegged tokens that link to a real-world currency like the U.S. dollar.
Asset-backed, fiat-pegged tokens, commonly called stablecoins, are different than bitcoin because they offer users the benefits of accessing the digital asset markets while reducing price volatility.
We are developing criteria to enhance transparency for stablecoins, and these guidelines will apply to stablecoin issuers. The exposure draft will detail the criteria's importance, who the criteria benefits, what information will be reported and feedback instructions.
Creating criteria for fiat-pegged stablecoins
Stablecoins are digital tokens linked to specific assets or currencies that maintain the value of those assets or currencies. Usually, organizations that create these stablecoins have policies for issuing and redeeming them.
Within the digital assets space, stablecoins have gained increased recognition for trading, making them an attractive option for many investors and businesses.
Buyers must still be aware of stablecoins risks, including lack of regulation and liquidity concerns. Right now, organizations issuing stablecoins have no requirements to disclose all their policies, including details like the terms for purchasing tokens, the location of the redemption assets, and whether the funds are accessible when redeeming tokens.
The exposure draft highlights specific guidelines that will apply to stablecoin issuers when reporting information and addresses three categories for reporting data about asset-backed tokens:
The amount of tokens that have been issued and are available for cash redemption
The amount of money available for holders when redeeming their tokens
The comparison of the total amount of money available and being held to the total amount of issued tokens that holders are redeeming
“When an issuer says, ‘I want to create a token, and I want to sell these tokens,’ there’s [currently] no common set of criteria to consistently report on information that stakeholders will need about the ability to redeem them such as, how much cash is sitting in the bank, or the availability of that cash for token holders,” said Diana Krupica, Senior Manager, Emerging Assurance Technologies Assurance and Advisory Innovation, at AICPA® & CIMA®.
“[That’s] the reason we’re creating these criteria ... to have a common mechanism of saying, ‘If you’re going to issue a token, your stakeholders can expect you to follow these criteria and you will have to report on the amount and availability of cash for each token outstanding sitting there in the bank.’”
The exposure draft also outlines specific areas to consider when applying the criteria and provides examples of what to disclose in certain instances.
By referring to the criteria as guidelines, token issuers can give investors and token users a higher level of transparency, which will lead to a higher level of trust overall.
AICPA criteria seek to ensure consistent disclosure of token information
Token issuers need a set of guidelines to share information about tokens with investors and regulators in a consistent way, and our proposed criteria aim to reduce inconsistencies in measuring and reporting issued tokens and available funds.
Establishing proposed criteria and guidelines for stablecoins will allow token issuers to compare and evaluate the amount of issued tokens and funds available and share that valuable information.
Bonus: The proposed criteria will benefit more than token issuers.
“I honestly think it really provides more transparency, which benefits everyone — the token holders, regulators, and token issuers,” Krupica said.
“The token issuers are prepared in a sense because regulators might come out saying they need to [report] based on a set of standardized criteria. The token holders get more information and can place more trust in the report. And it’s comparable to other reports, so the regulators can benefit from this too.”
Regulatory bodies require reporting and attestation
Entities such as the New York State Department of Financial Services (DFS) require reporting and attestation for stablecoins.
Once these guidelines are finalized and issued by the AICPA, they can serve as suitable criteria that can be used by practitioners when conducting an attestation engagement to perform procedures and generate a report on the issuer's claims about the sufficiency of assets for redemption linked to asset-backed, fiat-pegged tokens.
Your feedback is needed
The AICPA Assurance Services Executive Committee is taking steps to create and improve these criteria by seeking public feedback.
“Anytime the AICPA creates or develops criteria, one of the requirements ... is that there is due process and that includes public exposure to get feedback. An announcement goes out to everyone for an opportunity to say this is [correct] or incorrect and give their comments so that we can improve it to make it clearer and have it technically accurate. That’s ... the main feedback that we want to get from all different industries,” Krupica said.
The Assurance Services Executive Committee wants your professional and experienced opinions. In the section labeled “Guide for Respondents,” you can answer a brief series of questions regarding the information presented in the proposed criteria.
For optimal feedback, please include specific paragraphs from the exposure draft or criterion numbers in your responses to explain or support your reasoning. Feel free to offer suggestions to clarify the wording within the draft. Your feedback on the terms and definitions in the glossary will also be warmly received.
Let your voice be heard by participating in this process. We encourage you to download the exposure draft (below) and send your written comments to StablecoinED@aicpa-cima.com before January 29, 2024. View Stablecoin Criteria Exposure Draft Comment Letters received on the AICPA’s Exposure Draft titled “Proposed criteria for the presentation of the sufficiency of assets for redemption.