FASB Sets Out Three Conditions for Stablecoins to Qualify as Cash
On August 18, the Financial Accounting Standards Board (FASB) unveiled a new proposal regarding U.S. accounting standards that seeks to clarify the conditions under which certain stablecoins may be classified as cash equivalents by companies.
Summary
- The FASB’s proposal permits qualifying stablecoins to be classified as cash equivalents without altering GAAP’s definition.
- Qualifying tokens must come with issuer redemption rights and segregated reserves of highly liquid short-term assets.
- Merely having liquidity in the secondary market will not qualify a token if holders do not possess direct contractual rights for redemption.
- Entities must disclose key components of cash equivalents, irrespective of digital asset involvement.
- Public comments on the proposal will be accepted until November 19, with FASB to establish the effective date post-review.
This proposed Accounting Standards Update aims to provide examples within Topic 230, Statement of Cash Flows, without modifying the current definition of cash equivalents under U.S. generally accepted accounting principles.
The FASB has opened the proposal for public feedback until November 19. After considering the responses, the board will determine whether to finalize the standard and set an effective date.
FASB’s Three Conditions for Stablecoins
A digital asset qualifies only if its holder has an on-demand contractual right to redeem it for cash. This right must enable direct redemption with the issuer for a specified amount.
The issuer is required to maintain at least one-to-one reserves in segregated accounts, consisting solely of short-term, highly liquid assets that can be readily converted into a known cash amount.
Compliance with these conditions does not compel a company to classify a token as a cash equivalent. Companies retain the discretion to choose this presentation while considering relevant laws and regulations.
It is important to note that the proposal is not definitive guidance. The FASB intends these examples to foster “more consistent application” after concerns about different accounting treatments were raised during its 2025 agenda consultation.
The Role of Redemption Rights Over Secondary Trading
One example assessed by the FASB features a token that is actively traded in secondary markets but lacks a direct redemption right with its issuer. The board determined that liquidity in these markets does not meet the current cash equivalent criteria.
While a liquid market allows for quick sales, the market value may diverge from the promised value during turbulent times. Direct redemption provides a contractual mechanism to obtain a specified cash amount.
Another example disallows cash equivalent designation if reserves comprise crypto assets or gold, as fluctuations in their prices could hinder the holder’s ability to obtain a known cash amount.
The examples would also exclude algorithmic tokens, over-collateralized crypto-backed products, and other assets that lack direct issuer redemption, even if they are labeled as stablecoins.
Current Diverse Accounting Treatments Among U.S. Companies
The FASB initiated this project due to varying interpretations by companies under existing GAAP. Some publicly traded companies have begun classifying select payment stablecoins as cash equivalents based on their redemption and reserve structures.
For instance, Coinbase voluntarily modified its accounting practices effective December 31, 2025. Its SEC filed disclosure notes that USDC, EURC, and PYUSD are one-to-one redeemable and backed by cash equivalents in segregated accounts.
Coinbase applied this change retroactively; however, it stated that previously reported figures for assets, liabilities, equity, net income, or earnings per share were unaffected, although it revised portions of its cash flow presentation.
A finalized standard from the FASB could enhance comparability of these assessments across U.S. companies without influencing the legal permissibility of a token’s issuance or compliance standards for reserves.
Proposal Coincides with Upcoming Federal Regulations
This accounting proposal comes in conjunction with the implementation of the GENIUS Act, which established a foundational federal framework for U.S. payment stablecoins. Previous reports highlighted this law’s new rules concerning licensing, reserves, redemption, and disclosures.
The GENIUS Act is set to commence in January 2027, while regulators are still working on its operational requirements after initially missing the deadline for rulemaking.
The Treasury Department also recently initiated consultations on the stipulations for when tokens are issued, offered, or sold in the United States, alongside the latest licensing proposal reviewed by crypto.news.
Importantly, the FASB’s process operates independently of these regulatory actions. A token may comply with federal issuance regulations yet fail the accounting criteria if a specific holder lacks direct redemption rights or if the reserves contain unstable assets.
The proposal will require all entities reporting cash equivalents to disclose their primary components and associated amounts, even if no digital assets are included.
Feedback from stakeholders will be accepted until November 19, after which the FASB will contemplate revisions, decide on the adoption of the update, and outline the timeline for implementation.