The International Swaps and Derivatives Association (ISDA) responded to the US Commodity Futures Trading Commission’s (CFTC) request for input on the Tokenized Collateral and Stablecoin Initiative, offering perspectives on how tokenization and GENIUS Act–compliant payment stablecoins might contribute to more efficient and resilient collateral practices in derivatives markets.
The letter outlines potential opportunities – such as improved collateral mobility and enhanced risk management – while noting the importance of maintaining legal certainty, consistent regulatory treatment and sound liquidity and credit risk frameworks. ISDA also discusses considerations related to haircuts, custody, derivatives clearing organization acceptance and cross-border coordination, emphasizing the need for continued analysis and regulatory dialogue as these technologies evolve.
The response reflects ISDA’s intention to support policymakers and market participants as they assess appropriate standards for the responsible use of tokenized assets and stablecoins.
In addition, ISDA responded to the UK Financial Conduct Authority’s (FCA’s) consultation paper on progressing fund tokenization. In the response, ISDA focused on the use of tokenized assets as both cleared and non-cleared derivatives collateral. Tokenization presents a significant opportunity in the derivatives market, improving risk management through the accelerated movement of collateral, and is critical to facilitating 24/7 trading with sound risk management practices.
To realize these benefits, it is vital to ensure the risk management, legal enforceability and deep liquidity that underpin collateral movements in traditional markets are maintained when transitioning to distributed ledger technology and using tokenized assets as collateral.