US accounting board FASB proposes conditions for stablecoins as cash equivalents

The Financial Accounting Standards Board (FASB) has proposed guidelines for the classification of certain stablecoins as cash equivalents under U.S. generally accepted accounting principles. On Tuesday, the FASB announced the proposed Accounting Standards Update, which aims to provide clearer definitions and conditions for the treatment of digital assets like stablecoins.

The core of the proposal is that a digital asset would qualify as a cash equivalent if it offers an on-demand redemption right to its holder, with the issuer guaranteeing a known cash value and holding one-to-one segregated reserves in short-term, highly liquid assets.

The FASB emphasized that secondary-market liquidity is insufficient for a digital asset to be considered a cash equivalent. Instead, direct redemption rights from the issuer are essential, along with the presence of a sufficient reserve of liquid assets. An example provided by the FASB highlighted that active secondary markets alone would not suffice if the asset holder lacks direct redemption rights with the issuer.

Additionally, reserves consisting of cryptocurrencies and precious metals, such as gold, would disqualify a token due to valuation risks.

Under the proposed update, companies would retain the discretion to classify qualifying digital assets as cash equivalents, provided they comply with relevant laws and regulations. The FASB is currently accepting public comments on the proposed update until November 19, after which it will determine an effective date based on stakeholder feedback.