The Stablecoin Standard Framework for DeFi Stablecoins

DeFi stablecoins are expected to be supported by decentralized operational practices, such as the following, through protocol design, governance resolutions, service providers’ (SPs) obligations or other means:

1.1 Maintain fully collateralized on-chain reserves and apply over-collateralization where market, credit, or concentration risks cannot be adequately managed assessing the adequacy of collateral in conjunction with risks from leverage, liquidity, dependency chains, and the behavior of collateral under stress. For example, proof-of-reserves should be considered as a proof-of-solvency under stress with disclosures covering 

• collateral composition

• haircuts that reflect volatility

• available liquidity under adverse conditions

• exposure to circular dependencies

• methodology for valuing collateral during stress events

1.2 Collateral assets should be on-chain, stress-tested and overcollateralized, where possible and relevant, to ensure they fully cover the total soft-peg value, even under extreme conditions. For example, adequate collateral levels should be determined after accounting for account concentration of assets, liquidity depth and expected slippage under stress.

1.3 Avoid unnecessary risk-taking with the collateral backing the stablecoin. Collateral assets should be valued daily using oracle mechanisms on a mark-to-market basis and should cover at least 100% of the par value of all outstanding stablecoins. 

1.4 For any collateral assets involving indirect counterparty or custodial risks, appropriate risk-mitigation mechanisms should be applied where available.

1.5 Collateral should be programmatically separated by the protocol and transparently maintained for the benefit of stablecoin holders, distinct from other protocol-controlled funds. 

1.6 Promote collateral diversity, and avoid excessive concentration in illiquid or highly correlated assets.

1.7 Restrict re-hypothecation of collateral and support mechanisms that maintain sufficient liquidity for exchange or automated liquidation. Limit collateral types, prevent recursive rehypothecation, apply conservative haircuts to reused assets, and provide clear collateral transparency for users

1.8 Design products to support timely exchange without unreasonable costs. 

1.9 Commit to disclosures of collateral composition and valuation through transparent dashboards, supported by periodic third-party audits, where feasible, formal verification of key smart contract components. 

1.10 Implement mechanisms designed to preserve core functionality under adverse conditions and mitigate user impact in the event of extreme collateral depletion or systemic failure. 

1.11 Implement on-chain mechanisms and smart-contract logic that manage investment-related activities and maintain liquidity for exchanges. 

1.12 Liquidity risk-management practices and periodic stress testing are expected. e.g., ability to process 10% of TVL within a 72-hour period or some other reasonable and disclosed standard.

DeFi stablecoins are expected to be supported by practices that promote transparency, user protection, and accountable conduct through the following actions - implemented via protocol design, governance resolutions, service providers (SPs) or other means:

2.1 Implement decentralized governance that supports transparent and verifiable collective decision-making, and that may allow protocol upgrades or parameter adjustments where appropriate. 

2.2 Adopt transparent governance and risk-management practices that clearly define protocol roles, administrative permissions, and access rights. Governance structures and adjustable parameters should be publicly documented and verifiable on-chain. Where governance actions could result in protocol upgrades or material changes, protocols are expected to  disclose such proposals in advance and enable appropriate community input. Key disclosures should focus on visibility into leverage and risk pathways:

• leverage inherent in collateral assets (if present)

• rehypothecation or staking layers

• debt positions supporting collateral

• oracle dependencies affecting valuation

• how losses propagate to the stablecoin

There must be additional visibility into any off-chain or semi-off-chain components.

Where wrapped, tokenized, or synthetic assets are used there should be particularly robust disclosures or other appropriate frameworks in place to support proof of reserve methodologies.

2.3 Provide on-chain data showing total circulation, collateral composition, and collateralization ratios. Projects should support periodic third-party audits, smart contract reviews, and performance reporting. DeFi stablecoins are expected to conduct ongoing security assessments, publicly disclose past vulnerabilities, patches, and audit results, and implement bug bounties to enhance user trust and reduce systemic risk.

2.4 Provide clear and accessible documentation for general reference and risk purposes that explains key risks and economic mechanisms. These may include appropriate fees, the protocol’s stabilization mechanism, collateral valuation and management and any available dispute resolution process. DeFi stablecoins should clearly disclose that exchanges are not in fiat currency and that value recovery depends on the protocol’s condition and on-chain liquidation processes rather than enforceable legal redemption rights. For yield-bearing stablecoins, where such features are permitted, protocols should disclose the reward structure, projected return profiles, and associated risks.

2.5 Maintain a user communication process for addressing vulnerabilities, bugs and other incidents. This may include publicly accessible terms of use, incident-reporting channels, status pages, and information on issue resolution.

2.6 Commit to standards of ethical conduct and protect user privacy, through governance proposals or otherwise, for managing conflicts of interests, minimizing unnecessary data collection, enabling pseudonymous use where feasible, and clearly disclosing any analytics or monitoring tools used by the protocol.

2.7 Promote protocol development and maintenance by contributors with relevant expertise and track record. Where compatible with a decentralized model, development teams should disclose core SPs/contributors and grant recipients to support transparency and accountability.

2.8 Provide user-facing information through in real-time user interfaces, such as terms of use, explanatory materials, notifications, and risk disclosures. These resources should be easily accessible and enable users to understand protocol and other functions, especially risk scenarios, including vulnerability events, and collateral-based recovery mechanisms.

Development teams associated with DeFi stablecoins should take good faith steps to prevent cyber threats and financial crimes, maintain operational security, and promote responsible conduct. These explanations may  be met through protocol design, governance actions, service-provider obligations or other means, in line with fair practices and evolving regulatory standards.

3.1 Commit to take reasonable measures to mitigate risks related to fraud, theft and market manipulation. These  may include thoughtfully designed pause or emergency controls, and where appropriate, the use of transaction screening and reporting logic into smart contracts and protocol-level tools.5

3.2 Maintain appropriate cybersecurity, information security, and data privacy controls and adopt fair marketing practices where applicable.

3.3 Adopt a tailored sanctions framework for front-end interfaces that may incorporate decentralized or privacy-preserving approaches for UI user verification where applicable, together with appropriate mechanisms for transaction-monitoring and reporting that align with relevant regulatory requirements. These expectations do not apply where custody and control are fully decentralized. 

3.4 Implement a risk management program that includes periodic risk assessments, reviews of the performance of relevant risk and cybersecurity tools and governance-related measures that support responsible oversight of high-risk activities such as protocol upgrades, UI functionality and treasury movements.

3.5 Conduct and document ongoing due diligence on technical and protocol-level components. This includes regular smart contract audits, security testing, and updates reflecting emerging security and applicable risk, and regulatory considerations.

3.6 Implement mechanisms that enable  risk oversight, transparent decision-making, and effective control over activities that present elevated risk.

3.7 Engage with appropriate resources to remain informed on applicable legal and regulatory developments and to contribute, where feasible, to the evolution of decentralized risk practices and safer DeFi stablecoin ecosystems.