CFTC approves tokenized collateral for U.S. derivatives markets

The Commodity Futures Trading Commission (CFTC) has announced a pilot program that enables tokenized digital assets to be used as margin collateral in U.S. derivatives markets.

Acting Chairman Caroline Pham said the initiative was intended to draw digital-asset activity into U.S.-regulated markets and to get away from using offshore trading platforms. Bitcoin, Ethereum, and USDC will be treated solely as collateral for the first three months. 

The program establishes guardrails for Futures Commission Merchants (FCMs) accepting digital assets, requiring them to report weekly and receive timely alerts of operational issues. The CFTC also guided the application of tokenized real-world assets, including Treasury securities and money-market funds, under its current regime, with a focus on custody, segregation, valuation, and operational risks, while maintaining technology-neutral regulations.

In carrying out the pilot, CFTC suspended Staff Advisory 20-34, a 2020 memo that has excluded FCMs from accepting digital assets as collateral. The agency said advances in tokenization and the GENIUS Act had rendered the advisory obsolete. 

The GENIUS Act, passed in July, established a federal framework for non-securities digital assets and expanded the CFTC’s authority over both spot crypto markets and tokenized collateral. 

Coinbase’s chief legal officer, Paul Grewal, backed such a change, identifying the 2020 advisory as a “concrete ceiling on innovation” that went beyond regulatory limits and irritated the President’s Working Group on Digital Asset Markets. 

U.S. derivatives markets set to welcome institutional crypto activity

The CFTC’s pilot program could have a ripple effect on the U.S. cryptocurrency market. Allowing tokenized assets, such as Bitcoin, Ethereum, and USDC, to serve as margin collateral may help increase the liquidity of derivatives markets and attract new institutional investors who currently avoid U.S.-regulated platforms due to stringent regulations. 

Improved inclusion by these investors may lead to reduced dependence on offshore exchanges, thereby increasing the number of trades and the capital raised under U.S. regulatory oversight. 

Analysts suggest that adding tokenized collateral could also stabilize the market through standardized reporting and operational safeguards – something that could help mitigate the kind of volatility seen in the digital asset space. The pilot also indicates regulators are starting to come to terms with digital financial innovation, setting the stage for more crypto firms to do business in the U.S. rather than overseas. Broadly speaking, the program represents a significant step toward bridging the gap between traditional finance and digital asset markets.

Spot crypto trading debuts on CFTC-registered exchanges

The pilot is a few days after the CFTC approved spot crypto trading on CFTC-registered exchanges for the first time, a step Pham called unprecedented. Bitnomial exchange in Chicago, which is regulated as a derivatives venue, is now scheduled to launch leveraged spot trading, with its existing futures and options products, this week.

The U.S. derivatives watchdog regulates the exchange as a designated contract market (DCM). This means that the new activity will be launching in a fully regulated space, following strong encouragement from the federal agency, including direct meetings with Acting Chairman Caroline Pham to help expedite the process during the prolonged federal government shutdown.

“Recent events on offshore exchanges have shown us how essential it is for Americans to have more choice and access to safe, regulated U.S. markets,” Pham said in a statement. “Now, for the first time ever, spot crypto can trade on CFTC-registered exchanges that have been the gold standard for nearly a hundred years, with the customer protections and market integrity that Americans deserve.”

The step, which Pham referred to as a “historic milestone,” tracks recommendations from the President’s Working Group on Digital Asset Markets, which issued a report this year outlining a crypto agenda for U.S. regulators. Pham noted the CFTC is “finally using our decades-long existing authority” to initiate this trading.

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