The Financial Accounting Standards Board (FASB) has proposed new guidance setting out when companies may classify certain stablecoins as cash equivalents under generally accepted accounting principles (GAAP) in the United States.

Announced on Tuesday, the proposed Accounting Standards Update would add illustrative examples to the current definition of a cash equivalent, addressing the inconsistent treatment that digital assets such as stablecoins have received in company financial statements. The definition itself would remain unchanged.

Under the proposal, a digital asset would need to meet three conditions to qualify: it would require an on-demand contractual redemption right; a direct redemption right with its issuer for a known cash amount; and at least one-to-one segregated reserves held in short-term, highly liquid assets.

The illustrative examples also make clear what does not qualify. Active secondary markets alone would not be sufficient if the holder lacks a direct redemption right with the issuer. In practice, many holders buy and sell stablecoins on exchanges rather than transacting directly with issuers, which is why the existence of a direct redemption right is decisive under the proposed examples. Similarly, a token whose reserves are made up of crypto assets and gold would be disqualified because of the valuation risks associated with those holdings.

Companies would retain the choice of whether to present qualifying assets as cash equivalents, and would need to consider relevant laws and regulations when making that determination. The classification carries presentation consequences: under GAAP, cash equivalents are generally reported together with cash on the balance sheet, rather than under asset classifications that apply fair-value or impairment accounting.

The FASB is the private, nonprofit organization that establishes GAAP, the accounting framework governing financial reporting for public and private companies in the United States. Under GAAP, cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and present insignificant risk of changes in value.

The proposal marks the standard-setter's latest move to clarify accounting for digital assets. In December 2023, the FASB issued Accounting Standards Update 2023-08, which requires entities to measure certain crypto assets at fair value, with changes recognized in net income each period, replacing the previous treatment of such assets as indefinite-lived intangible assets subject to impairment. That update covered assets such as Bitcoin but did not settle how stablecoins should be classified, a gap that has contributed to the divergent treatments the new proposal is intended to address.

The proposal also comes after the United States put its first federal stablecoin law in place. The GENIUS Act, signed into law in July 2025, subjects payment stablecoin issuers to federal or state supervision and requires reserves of at least one-for-one in permitted assets such as cash and short-term Treasury securities. The FASB's proposed reserve condition echoes that statutory backing requirement.

Stablecoins are digital tokens designed to maintain a stable value, typically by pegging to a reference asset such as the US dollar. Major examples include Tether (USDT) and USD Coin (USDC), two of the largest tokens by market capitalization, and the overall stablecoin market now totals hundreds of billions of dollars in aggregate value, a scale that has made the tokens' treatment in financial statements increasingly relevant to corporate reporting.

The FASB is accepting public comments on the proposed update until Nov. 19. The organization said it will set an effective date after reviewing stakeholder feedback.

Source: Cointelegraph