On Friday the Commodity Futures Trading Commission (CFTC) announced a Crypto CEO Forum to discuss the launch of a digital assets pilot for tokenized collateral. In November a CFTC industry advisory subcommittee recommended that the CFTC adopt tokenized non-cash collateral for margin purposes. The group found there was no need for regulatory or rule changes.
The CFTC is initially inviting the CEOs of Circle, Coinbase, Crypto.com, MoonPay and Ripple to discuss the use of stablecoins as non-cash collateral.
When the digital assets subcommittee made the tokenization recommendation in November, they suggested the types of collateral would be World Bank bonds, government securities, corporate debt, money market funds and gold. Of course, many stablecoins resemble money market funds.
A key advantage of tokenization for margin purposes is the ability to provide assets immediately to meet variation margin requirements. Typically with derivatives, the parties involved in the contract only put down a fraction of the potential exposure as margin. Hence, when the price of the underlying asset moves against them, a party may need to post additional margin. The challenge of providing non-cash collateral is the settlement delays. On the other hand, if tokenized assets are transferred, settlement can be almost instant.
Crypto.com was invited to the Forum, despite recently going against the CFTC’s wishes. The crypto exchange launched prediction sports contracts which some believe resemble sports betting, including for this weekend’s Super Bowl. In January the CFTC announced it was investigating the contracts and asked Crypto.com to suspend the contracts while it explored them. Crypto.com continued to offer the contracts.
