The session paper proposes dividing crypto property into Teams 1 and a pair of. Group 1 consists of tokenized conventional property similar to shares issued on the blockchain and stablecoins that meet classification necessities.
The classification necessities embody passing a redemption threat and foundation threat exams. The redemption threat check ensures that the stablecoins are redeemable always at peg worth. The premise threat check determines if the stablecoin will be bought near the peg worth.
The stablecoins and cryptocurrencies that don’t meet these necessities fall inside Group 2. These are thought-about to be riskier than the property in Group 1 and embody cryptocurrencies like Bitcoin and Ethereum, in addition to algorithmic stablecoins. Therefore, the committee recommends a 1% cap on publicity to Group 2 crypto property.
For giant banks similar to JP Morgan and Chase, which has almost $264 billion in Tier 1 capital, the 1% cap signifies billions of {dollars} that may be held in crypto.
The earlier session paper proposed that banks should guarantee an equal quantity of capital-backed all crypto exposures. In different phrases, if a financial institution held $100 in crypto, it had to make sure it had $100 as a reserve.
Nevertheless, the committee has heeded the criticisms of its earlier session paper. The brand new paper suggests lighter guidelines for cryptocurrencies with equal liquid derivatives similar to exchange-traded funds (ETFs), recognizing hedging prospects.