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Circle announced that three of its top financial leaders have proposed a risk-based capital framework tailored to the unique risks of stable value tokens. Their study, titled "Risk-based Capital for Stable Value Tokens," outlines how this framework can enhance the safety and stability of tokenized finance.
According to Circle, Chief Economist Gordon Liao, Treasurer Dan Fishman, and CFO Jeremy Fox-Geen have introduced the Token Capital Adequacy Framework (TCAF), a risk-based approach designed specifically for stablecoins and other stable value tokens. This framework addresses the unique financial and operational risks of these digital assets, which differ from traditional banking and require a more tailored capital adequacy model than those set by global banking regulators like the Basel Committee.
The TCAF focuses on assessing and managing capital needs through stress testing and risk sensitivity, rather than relying on fixed ratios. It is adaptable to various types of token backings, providing a modernized approach to managing the unique challenges of tokenized finance. According to Circle's press release, TCAF is designed to handle the specific risks associated with tokenized assets, including market, credit, and operational risks, with an emphasis on adaptability to different types of token reserves.
