The white paper “Risk-based Capital for Stable Value Tokens,” was recently released by Circle, the company behind the USD Coin stablecoin.
The paper proposes a novel risk-based capital management system for stablecoins and other similar digital currencies. The authors of the paper believe that stablecoins require higher levels of capital reserves than what is currently mandated by the Basel banking regulatory frameworks.
They argue that this is necessary to address the unique risks faced by stablecoins and their issuers, such as price fluctuations and potential “runs” in the market, as well as operational and technological risks.
These challenges differentiate stablecoin issuers from traditional banks, and the authors suggest the adoption of their proposed Token Capital Adequacy Framework (TCAF) as a solution.
