The Conference of State Bank Supervisors (CSBS) recently issued interpretive guidance addressing the accounting treatment of stablecoins in the tangible net worth (TNW) calculation under its Model Money Transmission Modernization Act (MTMA). The guidance clarifies that CSBS intends for the definition of TNW under the MTMA to include, as “tangible financial assets,” stablecoins that meet certain criteria. The guidance is nonbinding, and it is uncertain whether state banking departments will consistently embrace this approach when evaluating whether licensees meet TNW requirements.
Background
Developed by CSBS with input from industry and regulators, the MTMA aims to standardize the regulation of companies subject to state money transmission laws by setting forth a uniform state-level licensing framework. To date, money transmission laws based in whole or in part on the MTMA have been enacted by 31 states.
Under the MTMA, licensees must maintain a certain net worth, generally calculated as total assets minus liabilities minus intangible assets, and must exceed a tiered percentage of total assets. The current MTMA definition of ”tangible net worth“ does not expressly include or exclude stablecoins, which has created uncertainty for licensees.
Interpretive guidance
This latest guidance clarifies that an on-balance sheet fiat-backed stablecoin qualifies as a tangible financial asset for TNW purposes if a contract exists between the issuer and holder that conveys the holder’s legally enforceable, unconditional right to redeem the stablecoin for cash (i.e., fiat currency) at par from the issuer. Stablecoins that do not satisfy that standard, including non-fiat-backed stablecoin, should instead be treated as intangible assets and excluded from aggregate assets in the TNW calculation. The guidance further notes that payment stablecoins issued in compliance with the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act convey a contractual right to receive cash from the issuer and therefore should meet the fiat-based financial asset standard.
What this means
By clarifying how stablecoins factor into the TNW calculation, the CSBS guidance can potentially resolve a gap in the MTMA framework – and give state banking departments a clear standard for classifying these assets on licensees’ balance sheets.
As more states adopt the MTMA, interpretive positions will continue to play an increasingly important role in ensuring the model law keeps pace with evolving business models. For money transmitters that hold or transact in stablecoins, the immediate takeaway is the need to review the redemption terms and supporting documentation for each stablecoin currently carried on their balance sheets, confirming whether the instrument conveys an unconditional, legally enforceable right to redeem for cash at par. Even if licensees’ holdings are consistent with this guidance, however, companies still need to consider the willingness of state banking departments to embrace it.
Looking ahead, additional asset-specific guidance from the CSBS is likely as digital assets become more prevalent in payment flows and new product structures test the boundaries of existing definitions. The advancement of the GENIUS Act will further shape the landscape at the federal level; as federal standards for payment stablecoins take form, we expect state supervisors to calibrate their frameworks to maintain supervisory relevance and mitigate conflict between state and federal requirements and standards.