FASB's Stablecoin Proposal Explained: When a Stablecoin Counts as Cash

Jeremy, welcome. Jeremy, how's it going? It's going well, gentlemen. Thanks for having me. How's it going, guys? It's going great. That was great. Better better since we you know, Zach was joking about you taking us to school and this stuff. You've got a lot of books, so maybe he was spot on about that. I think we have a lot to learn. Yeah. Maybe. I didn't sign up for another course, but, hey,

you know, if I could be a professor, that sounds good to me. That's great. Well, hey, man. I'm gonna throw a little bit of a curveball, a little off topic question here, but because you have so many books back there, what is one book that everybody in our audience should read that's on your Interesting.

Well Not to put you on the spot. Yeah. No. I mean, I got one off the top of my mind that took me down the rabbit hole personally was the creature of Jekyll Island. I I checked the island if I what's it? H t Griffin, I think it was. Creature of Jekyll Island. Have you guys read it? I have not. Fiction nonfiction? It's it's, it's nonfiction is about the history of the Federal Reserve and how it's created here in America. So Very interesting.

I might have to add this. The you said the creature of Jack Wolf?

Not what I was expecting the book to. Yeah. I was expecting we were doing some kind of, like, Dickensian English fiction and Yeah. Instead, we've got a look at the Federal Reserve. So shout out That's how we all get to the space. Right? Yeah. That's right. Is it honestly, I'm reading the Amazon review. It says you'll be hooked in five minutes. It reads like a detective story, which it really is, and it's all true. Alright.

Come on. Alright. I'm sold. I know what I'm gonna be doing my homework on. Know, we're gonna be Dashboard Club. We're gonna be yeah. Flying to London here soon. Actually, see, don't don't don't tempt us because that actually sounds like a pretty good idea. But we're gonna be flying to London in November for breakpoint, and maybe this one will be written here, and this will give us some good inspirations for the the segment. But done with the sidebar. Jeremy, give us a quick introduction.

I know you've been in this space quite a while now on on the CPA side of things, but maybe give us the who, what, when, where, and why to Jeremy

and the network firm. Yeah. Sounds good. Yeah. So my name is Jeremy. I'm a partner and cofounder at the network firm. I've been a CPA for over ten years now. My, crypto genesis story started at the beginning of my career when I was like, oh, I finally got some money in my pocket. I wanted to, you know, fulfill the American dream, and that's to buy a house. So I lived through 2008, and I saw, wow, there's a dip for 50% correction. That would have been the perfect time to buy a house.

The problem was I missed that window, but for next couple years, I was trying to figure out, okay. Well, when's the next opportunity gonna be? Well, that whole learning, what had me go down the rabbit hole of reading creature from Jekyll Island and a bunch of books about interest rates and banking, And, ultimately came to the conclusion that I wasn't a huge supporter of the current system. So that led me to look to alternatives.

So first was into gold, but, then turned to digital gold and really became a Bitcoiner at that time. This is about twenty sixteen, twenty seventeen. Then at the same time professionally, it was just my luck that my previous firm were the auditors of one the biggest crypto exchanges in the world. And I wasn't on the engagement, but I was like, wow. I need to sneak my way onto this engagement somehow. So I was able to weasel my way onto that.

It was, you know, the 2017 bull market, and they were looking for someone that, really knew about digital assets. So I became kind of the the in house expert of how to pull data from blockchains, how to prove ownership of, digital asset wallets and addresses. And, you know, that was really the jump start to my career. And then ultimately built a practice at that firm. But after FTX, many firms pull out of servicing the space.

Many people don't know that there was kind of a shadow operation choke point, that hit accounting firms. So a lot of firms stopped servicing the space. So many of us that were servicing the space had a decision to make, and that was either go back to doing our normal jobs, auditing or accounting for, you know, manufacturing or tech clients or Yeah. Follow our passion of of crypto. So

we obviously chose chose the latter and that was the impetus for the creation of the network. We we've we've followed these passions and I imagine the, you know, the state of accounting and doing, you know, on chain finance in 2017, 2018 feels very different than how it does now in 2026, especially with the advent of, you know, the genius and clarity. And especially, was like, k. We knew stablecoins were important.

We need liquidity to trade these assets, but now it's like the tides have shifted into this whole other realm of attestation to going there. So maybe walk us through, like, kind of this lens of maybe how your main focus as a CPA has has evolved. Like I said, as from like, okay. Hey. We're just you know, we're we're making sure that we're doing accounting right for any token grants or, you know, any of these trading activities to, like, hey.

Actually, now, we need this from a regulatory standpoint even more than before maybe. And let me know if I'm off on any of those assumptions. No. That means generally right. Right? That's how things

evolved, you know, back in the early days. There was no one really knew what was going on from a regulatory perspective, the licensee perspective. So people didn't even know if they were money transmitters, and typically, was the first, you know, indication that you would need an audit as you need them for MTL licenses, and people didn't even know if this counted. But back 2017, 2018, it started to be pretty clear that you would need an audit to, be an MTL, which digital assets kinda fell under.

But then there was all these other types of instruments like stable coins, RWAs, ETF, like the things just continuously evolved. So that's led us down the road of providing proof of reserve attestations. And if you think about it, there's so many situations in in crypto whereby you're trusting a third party to hold assets, and they'll issue a receipt or a token on top. But how do you know they actually hold the underlying assets?

So, we were you know, I was one of the first folks to perform a proof of reserves by a CPA firm for an exchange, for a stable coin, and we've been doing it for ETFs and now RWAs like stock tokens most recently has been a pretty big driver. So that was that kind of the next iteration. And then we also have iterated and, been able to do these types of proof reserve attestations in real time as well because the whole promise of blockchains is that, you know, they're they're real time. Right? You can get data something.

But if you can get that, that other side of the reconciliation in real time as well, why can't you look at these these both things, you know, synchronously at the same time and and at the time POR?

Unpack that disconnect a little bit more. I kind of alluded this to Zee earlier earlier on the stream that it's like, hey. Everything's happening real time twenty four seven, three sixty five. Yeah. Here's your monthly p d report of the attestations. And, you know, kinda like you said, and and feel free to add maybe the the personal flair here of, you know, on one breath, we don't love the current system, but we need the US dollar. This is the core underpinning to how money is moving globally.

And now how do we make sure that, hey. If there's a $100,000,000 of this stable coin, that there's a $100,000,000 of cash equivalents back in it. Like, how how do we make sure that that actually happens?

Yeah. You're getting to the point of, like, oh, well, if you're into Bitcoin, why are you into, you know, stablecoins or stock tokens? They're just a proliferation of the existing system. Well, I would say either way, they're an upgrade to financial system. Like you said, it's instant settlement. Things are just generally can be better, right, the transparency that it provides. So I think, ultimately, it's a good thing.

And where the disconnect comes in, though, is when you're issuing a stable coin or issuing a stock token, there is right? There's these tokens that you hold and you're like, oh, great. This represents or should be a dollar. But how do you know that it's fully backed? Because if push came to shove and you wanted to redeem, are you gonna be able to get your dollar back? So the blockchain side is easy. It's transparent. Everyone can see it. But that dollar side is more opaque. Right?

It's typically dollars held at financial institutions or it could be other, you know, treasury or reserve instruments. So in an attestation, that's typically the harder part to get visibility into is, you know, what is the arrangement? Are the are those assets segregated from your corporate funds? Is what are what are the instrument types? How do you get the fair value? And then ultimately, ideally, how do you report on it in real time?

So good news is banks have gotten a lot better or, you know, custodians have gotten a lot better with APIs or at least providing daily information that you can use that's more timely versus getting your attestation every 30 days. That seems like it's like the age of AI. You know? Like, I'm getting or Amazon. I get my delivery in sixteen hours. Why is this attestation that's you know, seems simple, takes so long? So that's kinda what we're trying to address there.

See, I was I was holding my breath in case you Oh, okay. Sorry. Had a question because

Yeah. I I wanna I wanna hear a little bit about the evolution of the network firm. Something you've been running with a couple years. Seems like the team has grown significantly. You guys have it from from what I saw sort of tracing some of your social media posts and that kind of thing, was seeming like you guys are firm that will stick with people through the bull and the bear, and you're sort of putting your flag in the sand about these are the sort of companies we wanna work with.

We are in the digital asset space broadly. You know? And it seems like there's there's growth to the firm. There's a special culture. Like, what makes you so enthusiastic about what you're building and who you're building with?

Yeah. So today, the network firm is about 30 CPAs, engineers, and professionals, and we only service digital asset companies. Now more recently, that includes digital asset adjacent companies. These worlds are kind of merging crypto and. So, obviously, you know, servicing those types of clients as well. But, ultimately, our passion be comes from, you know, loving digital assets, loving crypto, and we think it can make for a better world. So we wanna be able to contribute to that.

And what's our best way of doing that? It's using our talents as auditors and accountants to be able to, you know, put our put our efforts where we think the future's headed and what's a net positive for the world. So, you know, you can do anything. Right? But you can you can you can be a you can be an accountant. You can be, in legal field. You can be in whatever compliance.

But if you have a passion for the stuff you think it can pro contribute to a better world, you can just, you know, mismatch that with servicing the crypto industry, and now you're contributing. So that's how we feel So about the firm. So

we're probably the folks on this call and a lot of people watching the stream today are enthusiasts, are early adopters, are crypto maxes, if you will. But what do you say to the skeptics?

Because I feel like you're playing an important part in the kind of trust and adoption ecosystem and the Safeguard ecosystem for folks who are kind of on the fence about adoption of the service technology, they're not necessarily as excited about it as as what you were just saying about whether it's Bitcoin or tokenized assets or etcetera. Like, how do you kind of play a role as, like, a trust evangelist and encouraging people about the adoption here.

Yeah. And we know the history of the space, and it's almost every day. You see a project, and you're like, I'm not sure about that. It's a lot of reasons not to. Right? That that's what I'm trying to drive at here. Yeah. And and part of our job is separating the wheat from the shaft and what's legitimate here and versus what's not. Now over the last fifteen years, the good and the bad have been jumbled, right, on the Wall Street Journal headlines or what have you. Right?

It's just crypto is bad, you know, and, you know, one bad thing happens and it's projected onto the whole space. So that's part of our role in society and for the industry is separating that we from the chaff and for them to be able to demonstrate certain transparency elements or demonstrate certain financial reporting elements. And it's yeah. We get a lot of interesting calls knocking at our door, and that's a key client acceptance process for us really is is this a legitimate project?

Are they saying who they you know, are they really are what they say they are? And then diving into the weeds and the details and having them demonstrate it and prove it. And the key, though, that the differentiator why you choose the network from, though, is that since we have this passion is that we on we know what the risks are to look for. We know how things work. If you just get a firm that's kind of dipping their toe into the space, they haven't seen that much before.

That it's actually pretty risky working with them because they're not gonna know what to look for, versus we've been looking at this stuff for ten years. So I I know what questions to ask in the first call. Like, hey. You know, how is this structured? What does this look like? How's the segregation happened?

To usually suss out things pretty early now. And taking us down that rabbit hole, how does this sort of work look really different in the digital asset or digital asset adjacent space than it does, standard either mainstream business or even large scale enterprise in in a different realm?

Yeah. I mean, the way I think about blockchains in general are they're just another type of ledger, and accountants should be very familiar with ledgers. Right? We have general ledgers. We have bank ledgers. This is just another type of ledger, but since it's new and novel, most firms feel a little bit uncomfortable with it. But having the background as an accountant, once you see the transaction activity, you see the debiting and crediting, I one, I felt familiar, but two, I felt, wow.

This is obviously the future of accounting, because this is a much faster and better way to account for things. So there's that, you know, getting comfortable with the completeness and the the accuracy of data on a ledger. But the unique thing too is having no counterparty to, like, confirm balances with. So most accounts are used to being able to send something to the bank or getting a bank statement saying, hey. Show me the balance here. That doesn't really exist if you hold Bitcoin in a self custody wallet.

So the difference there is how do you pull balances yourself? How do you demonstrate control of a wallet so that you can include it on your balance sheet? Those are some of the unique things, the the key ones. There's a lot of little nuances, but those are the big ones.

Jeremy, I wanted to shift a little bit now into kind of like the like the big question people are are thinking about right now, especially through the lens of the genius act is, like, when do we start stop having to say, like, okay, stablecoins, they're they're like digital dollars, but they're different because of x y z. When do we really start diving into like, hey, these are cash equivalents, we should treat them as such.

What do they need to do to be Genius compliant and really what do what does this mean for stablecoin issuers and teams, you know, maybe even looking to launch their stablecoin?

Yeah. I think being able to classify stablecoins as a cash equivalent wouldn't be a huge unlock for a bunch of reasons that we can get into. But, some of the background context is that, historically, stablecoins were classified as digital assets on the balance sheet and not as dollar or cash equivalents effectively.

But, a couple weeks ago now, the financial, accounting and standards board, they call them the FASB for short, they released a proposal that clarified the existing definition of cash equivalents and how it would could or would be applied to certain stablecoins. Basically, when can stablecoins be considered cash equivalents from an accounting, a reporting, and a financial perspective?

So I think it's huge potentially huge impacts because, one, it would make you be able on the balance sheet be able to hold these things as cash. And that means on the income statement, it doesn't mean when you do a transaction, it doesn't mean you have to track the micro penny if you bought something and the stablecoin was $10.01 and you you sold it for 99¢. Like, you don't have to track those micro little movements every time you do a stablecoin transaction.

And then it's also gonna be big for, call it, for companies that have debt covenants or requirements to hold capital. Like, think if you're, a Bitcoin miner and you're required as part of your deal or your loan to hold a certain amount of cash or cash equivalents, being able to include stablecoins in that bucket would be a huge unlock for being able to hold these things long term on your on your books. So I think being able to have this, would be a huge classification adjustment.

It's an accounting adjustment, but it's a huge, you know, downstream impacts for for holders and and issuers actually too.

And so breakdown now, let let's go a little bit deeper, like, start to unpack, though. I wanna go into, like I I get the cash equivalent side of this. Mhmm. What about the reserves? What about the redemption? And as I think especially the the aspect of, like, the bankruptcy remote accounts, because I think, like, a lot of people's, you know, fears right now with stablecoins, especially when we're thinking in the in the lens of neo banks is, okay, well, FDIC insurance.

What happens in in these doomsday black swan events? Like, what safeguards need to be in place so that we're not seeing, you know, d the pegs down to 80¢ and and things of that nature. What does that ecosystem start to look like? How do we need to how does that need to take shape?

Yeah. Yeah. So what the FASB came up with is that if you're gonna consider some of these stablecoins as cash, they need to be very cash like and have those protections in place. So a couple of the requirements to be considered a cash equivalent would be, one, it would be contractually redeemable for a dollar. Simple enough. That's most stable coins.

Two, the assets need to be segregated and the reserves need to be held on a one to one basis, you know, exceeding token supply, but the reserve assets need to be siloed either, you know, a separate vehicle or separate accounts, segregated for the stable coin, and it needs to be backed by a very limited set of, assets. Like, under genius, it's, you know, the bank deposits, treasuries under three months, money markets under three months, and a few other, items that would qualify.

And then the last thing, though, if you're looking to get this cash equivalency status on your balance sheet or if you're an issuer trying to have your stablecoin be considered a cash equivalent is that the holder needs to have a direct redemption rate with the issuer. So I think that's the big thing. That's the big call out here is that if you don't have a direct window to redeem your stablecoin with the issuer, you can't consider a cash equivalent on your balance sheet.

And that's huge because think about all the USDC users on Coinbase, even though you can swap it for a dollar, if you don't have a an account directly with Circle, you're not allowed to classify it this way under the proposal. So, I hope they get some comments on the proposal saying, hey. This is basically the same thing. But right now, under this proposal, they wouldn't be able to get that classification. So,

we'll see how that's going. That's and it's an interesting paradigm to think about think through. I mean, I've even thought about this when, you we think about the last mile problem and dollars going into local currencies and how does this mint burn mechanism work. Like, right now, that's really, like, weighted on the side of, you know, a a business having those permissions and being able to mint USCC or or mint x y z, stablecoin. Do you think we'll see a world where it's actually no.

Actually, consumers, like, the better system is rather than, like, on off ramps and payments, it's actually, like, mint burn mechanisms directly with the issuing institutions, or does that create more problems?

Yeah. I mean, it's yeah. There's this you know, how do you do this in the most trustless way, but also having direct access to the issuer instead of having to go to a DeFi protocol and swap for 97¢ with all the slippage or what have you. I don't know how it's going to evolve because I know operationally, it's a headache for the issuers to maintain certain, like, millions of accounts. So that's why a lot of issuers, they'll have institutional partners or market makers or OTCs that do that for them.

But with this cash equivalency, you know, option or potential, it's gonna open up the door, for stablecoin issuers to really look at if they wanna be able to provide direct redemption access to a lot more people. I can see a world where, you know, maybe there's a way where Coinbase or the other platforms, they can provide direct redemption through Coinbase, but it's still somehow like a direct redemption window through the platform. Right? The the platform is a proxy directly to the issuer.

Maybe there's some legal legalese that they could figure out to make that happen. So I can see that,

at least exploring that out. I think that's a way to make this happen, but we'll see how it evolves. I guess, like, the analogy I start to think of is, like, could you imagine, like, if you if I went to my local credit union and it was like and instead of like, I wasn't able to just go get cash out. Because there's some there's some barrier now in between me like, the bank and, like, my, I guess, actual money. It's like, what is that digital equivalent? I don't know. Maybe it doesn't matter as much.

I guess the the last question that I would have, and it looks like Rags is joining here soon, from a fee and revenue model, I think we've especially thought about this and seen this a lot with Circle kind of, like, expanding outside of just being a stable point issuer. They obviously have this larger acquisition this week. What what was your comment here on what stable point issuers should think about when when evaluating their fee and revenue model in regards to this?

Yeah. There's, a couple clauses, like, in the FASB's proposal and Ingenious is that token holders need to be able to get their dollars out or redeem without significant fees. So that means if you wanna redeem, but you have to take a one, two, 3% haircut, is that considered significant? It's not defined, but you start getting into higher fee arrangements. Now it starts to call into that classification and your compliance.

So if you're not gonna charge a mint and burn fee, what are the other fees or other revenue models that might make sense for you? You know, is it a AUM or an account opening fee? Is it a, you know, ancillary services that you have on top? So I think we'll see some of these start to evolve. Of course, they'll wanna do that anyway to make more money, but, also to make up for, maybe higher mint burn phase two.

Yeah. And I mean, I think it's a it's also I think it just begs the question of, like, where should issuers make money? Like, do you want there to be friction to have people go in and out of your stable point? Like, is that the right place to make money to begin with, and what you wanna build your business around? Yeah.

Of course, there's the core revenue model is typically interest on reserves. But that's so deterministic based on interest rates. And I guess today, interest rates are going up. But, you know, over the long term, is that sustainable or is that what you feel comfortable landing your business on in its entirety? Or or do you wanna have these other revenue sources? So, yeah, we'll see how we work, guys, see the innovations.

I love it. Well, thank you, Jeremy, for coming on and taking us to school and giving us the best book rec of the day as well.

Yeah. Appreciate it. A comment. Drew Drew was walking watching, and he said that's that's a great read. So one one of the Stable Dash crew has read it. And, Drew, if you're still watching this, go walk off. We'll spend time with your fam. He he had a little baby. But, hey. He's got the Stable Dash bug. But, Jeremy, yeah, it was great to have you on. Appreciate you coming on today, and, I'll be sure to hit you up with when we have any questions from the regulatory, CPA lens.

Sounds good. Zia and Zach, thank you so much. See you guys. Appreciate it. You later.