The Launch of SCS Standards for DeFi Stablecoins
The Stablecoin Standards (SCS) DeFi stablecoin Framework is designed for the unique architecture and risks of decentralized stablecoins. Building on our 2024 work on centralized stablecoins, the updated framework offers industry stakeholders a structured reference point to assess and improve the resilience, transparency, and user safeguards of DeFi stablecoins.
We would like to thank the Stablecoin Standard Policy working group and all the partners and stakeholders that contributed to the effort including Anna Perena, Sakota Doi Bekku, Pere Puig and Lukas Forsingdal.
How Are DeFi Stablecoins Defined in the new SCS framework?
Decentralized finance (DeFi) refers to peer-to-peer transactions built on public blockchains such as Ethereum. It encompasses a growing ecosystem of decentralized applications (dApps) that deliver services including lending, borrowing, trading, and insurance without relying on intermediaries such as banks or brokerages. These services operate through smart contracts and are designed to be accessible to anyone with an internet connection, providing automation, transparency, and permissionless access.
DeFi stablecoins are stablecoins that operate within DeFi. They maintain a peg through on-chain mechanisms, such as crypto collateral and smart contracts, without reliance on centralized control.
Centralized finance (CeFi) stablecoins continue to be preferred in many contexts due to their regulatory alignment and operational consistency, despite structural risks such as censorship potential, limited transparency, and concentrated administrative control. Many DeFi stablecoins aim to address these concerns by leveraging smart contracts and community-based governance. This, in turn, is designed to create permissionless access, and on-chain transparency and censorship resistance.
The SCS Framework for DeFi
The initial Stablecoin Standards (SCS) framework was developed with centralized stablecoins in mind. Nevertheless, its underlying principles such as resilience, transparency, and user safeguards are also applicable to decentralized models. The DeFi version of the SCS framework can provide meaningful standards for DeFi stablecoins by accounting for differences in risks and products as well as the structural distinctions of decentralized infrastructure¹.
Because DeFi stablecoins are collateralized on-chain, system resilience depends significantly on the composition, quality, and concentration of underlying collateral. The new SCS DeFi stablecoin framework is based on the premise that diversified collateral frameworks seek to reduce systemic fragility and mitigate volatility-driven risk events.
Standard 1.0: Operational Resilience
Smart contracts underpinning DeFi stablecoins are well-served when they are subjected to rigorous technical validation. Risks specific to smart contract execution such as code exploits, delayed liquidations, or failure during stress conditions require robust mitigation through independent security audits and formal verification.
DeFi stablecoins, through smart contracts/protocols, service providers (SPs), efforts by governance resolutions or otherwise, should implement liquidation frameworks that function reliably under adverse conditions. These mechanisms should be supported by well-calibrated collateralization ratios and automatic response systems to preserve solvency and systemic stability.
Standard 2.0: Transparency and User Protection
Despite operating on public blockchains, DeFi stablecoin users often lack full visibility into exchange mechanics or protocol health. The framework encourages increased transparency related to issuance volumes and collateral status in real time.
DeFi stablecoins typically do not confer legally enforceable redemption rights at fixed fiat value. DeFi stablecoins should clearly communicate these limitations through user interfaces, Terms of Use and otherwise. These communications should include practical information on how exchanges function, how value is derived from the collateral pool, and what users should expect under abnormal conditions.
User protection can be enhanced by embedding real-time warnings, intuitive explanations, and educational resources.
Standard 3.0: Product Commitments
DeFi stablecoins should commit to prevent financial crime, including fraud, theft, and manipulation. In the absence of a central issuer, these responsibilities can be distributed across agents of the DAO, community governance, grantees and SPs. Key commitments include robust cybersecurity, sanctions screening and privacy-preserving risk measures.
Cybersecurity remains a core operational risk. There are increasing risks related to codebase tampering, insider threats, and manipulation of market dynamics. Practices for protocol upgradeability, governance controls, and emergency intervention mechanisms should be fully disclosed and reviewed through independent risk audits.
Trust in the system depends on transparency in governance. Even where legal recognition is absent, standards for disclosure, user risk notifications, and procedural safeguards should be adopted.
With this framework, we take a significant step toward responsible DeFi innovation. We invite all to engage with the standards and contribute to a safer, more transparent future for DeFi stablecoins. Through collective adherence to this framework, we can support both market integrity and broader public trust in DeFi.
¹See Blockchain and Internal Controls: A COSO Perspective. See also emerging frameworks such as Trust Without Intermediaries: A Programmable Risk Management Framework for the Future.
About Stablecoin Standard
Stablecoin Standard (SCS) is the industry body focused on setting operational, transparency, and product-related standards for stablecoins. The SCS plans to achieve industry-wide standards by sharing international best practices, business development use cases, forming industry-led working groups defining what a high-quality liquid stablecoin should look like, and engaging with policymakers domestically & internationally. The SCS ecosystem consists of more than 35 advisory board members, industry partners and issuers that offer digital currencies in global jurisdictions such as the US, EU, Singapore, Australia, and Turkey - among others.
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Media Contact: stablecoinstandard@mgroupsc.com
