When does a stablecoin count as cash? US accountants just proposed a test

The Financial Accounting Standards Board, which sets the accounting rules US companies follow, proposed guidance on Tuesday spelling out when a stablecoin can sit on a company's books as a “cash equivalent” — the same category as Treasuries, commercial paper and money market funds. The definition of cash equivalent itself would not change; the proposal adds worked examples to settle an ongoing dispute in which similar tokens were being treated differently by different companies. Comments are open until November 19.

The test has two parts. The holder needs an on-demand contractual right to redeem the token directly with its issuer for a known amount of cash, and the issuer needs at least one-to-one segregated reserves held in short-term, highly liquid assets.

What fails the test is the more interesting half. FASB says an active secondary market is not enough on its own if the holder has no direct redemption right with the issuer — being able to sell a token to somebody else at a dollar is not the same as being able to hand it back for a dollar. It also says reserves made up of crypto assets and gold would disqualify a token, because those holdings carry valuation risk. Even when a token qualifies, companies would still choose whether to present it as a cash equivalent, and would have to weigh relevant laws and regulations.

That distinction is worth borrowing even if you never touch a balance sheet. A stablecoin trading at a dollar and a stablecoin redeemable for a dollar are two different claims, and it is the second one that holds up when a market gets stressed. The two questions FASB is effectively asking — can I redeem this directly with the issuer, and what exactly is behind it — are the same two questions a beginner should ask about any token described as stable.

None of this is final, and none of it is a safety rating. FASB began writing crypto-specific accounting rules in 2023, and this is one more piece of that work; it will set an effective date after reviewing feedback. A token passing an accounting test tells you how a company may record it, not that it cannot break. This is information, not advice.