Stablecoin Accounting Treatment Requires More Than Semantics

Should certain cryptocurrencies known as stablecoins be counted as cash and cash equivalents? Figuring this out involves more than semantics. Whether companies can include stablecoins in “cash equivalents” on their balance sheets significantly affects liquidity metrics and risk perceptions.

That’s why the debate over the accounting treatment of stablecoins matters to companies, accountants, and auditors, as well as investors, regulators, and markets. Clear financial reporting underpins investor confidence and financial stability by extension.

Not Created Equal

Stablecoins are tokens designed to maintain a stable value, typically by pegging to a fiat currency such as the US dollar. In theory, they bridge the gap between volatile cryptocurrencies and stable cash, supporting uses from trading and cross-border payments to decentralized finance.

The GENIUS Act, enacted in July, established the first US regulatory framework for payment stablecoins—fiat-pegged tokens that offer no yield, guarantee one-to-one redemption for dollars, and are fully backed by high-quality liquid assets such as cash and short-term Treasuries.

The Act requires issuers to be federally or state-licensed, publish monthly audited proof-of-reserve reports, and certify their accuracy under penalty of law. It also bars the use of reserves for lending or investment and grants token holders priority claims on those reserves in insolvency.

For these regulated tokens, compliance matters most and it can’t be taken for granted. Notably, the world’s largest stablecoin issuer, Tether, remains outside the GENIUS Act’s scope, as it is a foreign entity and doesn’t provide all US users with direct redemption rights. It’s unclear how Tether will take steps toward compliance.

Stablecoins outside the GENIUS framework take many forms. Commodity-backed tokens such as Tether Gold are tied to gold prices; risk-asset-backed tokens such as DAI rely on volatile cryptocurrencies; and algorithmic coins such as the failed TerraUSD are sometimes not backed by any assets.

A new category may soon emerge: corporate coins, such as those reportedly explored by Walmart Inc. and Amazon.com Inc. Such tokens could fall under the GENIUS Act if they’re fully backed by reserves and redeemable for US dollars.

However, if they rely on internal corporate credit or aren’t fully redeemable, they would likely be treated as stored-value instruments under consumer-protection laws rather than payment stablecoins.

One stablecoin’s “digital dollar” can be far more reliable than another’s. Any discussion of treating stablecoins as cash or cash equivalents must grapple with this diversity.

Rules Fall Short

In December 2023, the Financial Accounting Standards Board issued ASU 2023-08, the first authoritative US guidance on accounting and disclosure for crypto assets. To fall within its scope, a token must:

• Meet the definition of an intangible asset as defined in the Codification
• Not provide the holder with enforceable rights to, or claims on, underlying goods, services, or other assets—meaning its value must arise solely from its existence on a blockchain or distributed ledger
• Be created or reside on a distributed ledger based on blockchain or similar technology
• Be secured through cryptography
• Be fungible
• Not be created or issued by the reporting entity or its related parties

While ASU 2023-08 stops short of clarifying how stablecoins should be accounted for, the second criterion alone would exclude many of them, as such tokens purportedly provide holders with enforceable redemption rights backed by reserve assets. Even if these stablecoins fall outside the ASU’s scope and therefore aren’t recognized as intangible assets, that doesn’t automatically qualify them as cash or cash equivalents.

Under existing US generally accepted accounting principles, ASC 230-10-20 defines cash equivalents as short-term, highly liquid investments that are readily convertible to known amounts of cash and so near maturity that they present insignificant risk of changes in value.

For payment stablecoins covered by the GENIUS Act, whether they meet this definition depends on how strictly the criteria are applied, because such tokens technically lack a maturity date. The FASB hasn’t yet taken a position on their qualification.

The GENIUS Act, however, covers only a narrow segment of the stablecoin market, and neither the law nor current accounting guidance clarifies the treatment of other types of stablecoins.

Necessary Regulatory Coordination

The cash question of stablecoins may not have a universal answer, or one that any single regulator can resolve. While the FASB will ultimately determine how stablecoins should appear on corporate balance sheets, the appropriate accounting treatment depends on each token’s structure, rights, and obligations, which vary widely across issuers.

In the meantime, the Big Four accounting firms have weighed in. For example, guidance from PwC highlights key considerations such as the stablecoin’s purpose, redemption rights and limits, collateralization, counterparty risks, and the legal enforceability of redemption claims.

Stablecoins’ design and operation differences make a uniform accounting approach infeasible. Recognizing this gap, the FASB chair recently added a project on digital assets to the board’s agenda. The initiative aims to explore targeted improvements to accounting and disclosure standards, including whether certain payment stablecoins could qualify as cash equivalents under US GAAP.

Accounting clarity alone isn’t enough. The appropriate treatment will also hinge on legal and audit frameworks. In particular, whether payment stablecoins qualify as cash equivalents crucially depends on issuers’ compliance with the GENIUS Act and the safeguards it mandates. Although the Act intended to provide a legal framework rather than accounting guidance, its core requirements for full backing, audited reserves, and enforceable redemption rights determine how closely these tokens resemble cash.

Transparency also remains a concern. While the Act requires monthly audited proof-of-reserve reports, stablecoin-specific audit guidance hasn’t been available, leaving these engagements to rely on general auditing and attestation frameworks. In the past, such attestations often excluded liabilities, overlooked internal controls, and omitted the terms under which reserves are held.

With robust legal and audit frameworks in place, payment stablecoins could justifiably be treated as cash equivalents. If this treatment isn’t permitted, companies will likely refrain from material holdings of stablecoins, as doing so would understate their liquidity positions simply because of accounting classification.

However, absent such safeguards, classifying any stablecoins as cash equivalents could open the door for risky assets to masquerade as risk-free holdings on corporate balance sheets—a tempting distortion.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Vivian Fang is the Sznewajs Family Chair in Finance at the Kelley School of Business, Indiana University. She has been teaching and researching cryptocurrencies since 2018.

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