Five confirmations before a business adopts stablecoin settlement

An increasing number of trading businesses receive requests from counterparties to settle in USDT. Some accept; some decline. Those that accept generally lack a process that can be explained clearly to banks, auditors and tax advisers; those that decline forgo commercial opportunities. The solution in both cases is the same: bring stablecoin settlement within a regulated, auditable rail that produces complete records. Before doing so, a business should complete five confirmations.

First, the counterparty. Both payer and payee must complete due diligence to the same standard as fiat transactions: KYB for corporate clients, KYC for individuals. Funds from a counterparty that has not completed due diligence cannot be accepted.

Second, the on-chain source of funds and the addresses through which they have passed. Every on-chain receipt must be screened before a decision to credit or return. Digital Reserve screens through Elliptic; funds that fail screening are dealt with in accordance with applicable law, the review outcome and the service agreement. This stage cannot be omitted or performed retrospectively.

Third, the execution and quotation of conversion. Conversion should be executed against a single quotation with a validity period, locked on confirmation. Split quotations, undisclosed spreads and post-trade adjustments are the principal sources of subsequent reconciliation differences.

Fourth, fiat delivery. Following conversion, funds should be settled to the corporate bank account in the corporate name, not through a third party's personal account or an employee's personal account. This is the first item that banks and auditors examine.

Fifth, audit records. Each transaction should have an on-chain record, a conversion record and a fiat settlement record that reconcile with one another; a monthly statement should be produced; and transfers subject to the Travel Rule should carry originator and beneficiary information.

It should be noted that the assessment stage is not a compliance review. Digital Reserve first seeks to understand the business's existing arrangements without judgement; compliance determinations are made at the due diligence stage. Businesses are advised to complete the five confirmations before deciding whether to migrate.