On April 4, the Securities and Exchange Commission's (SEC) Division of Corporation Finance issued a statement clarifying that reserve-backed U.S. dollar stablecoins are not securities, at least under current law and circumstances. The nonbinding guidance marks the latest effort by SEC staff to articulate the boundaries of the agency's jurisdiction in an evolving crypto regulatory landscape.
Stablecoins are blockchain-based digital assets that are typically pegged to traditional currencies like the U.S. dollar (we previously discussed the stablecoin market here). The statement addresses "Covered Stablecoins"—those pegged to the U.S. dollar and backed by sufficient low-risk, liquid assets, so as to allow a Covered Stablecoin issuer to fully honor redemptions on demand. Covered Stablecoins are designed to maintain a stable value by being fully backed by reserves equal to or greater than the total amount of that stablecoin in circulation. The issuer allows users to mint or redeem these stablecoins at a fixed rate of $1 per coin (or the corresponding fraction), at any time and in any quantity.
The SEC staff noted that these tokens are marketed for use in payments, money transmission, or storing value, not as speculative investments. SEC staff reasoned that because buyers are not motivated by profit, and the tokens do not confer ownership rights or returns, the transactions involved in minting and redeeming such stablecoins do not require registration under federal securities law.
While the staff's position offers some comfort to stablecoin issuers, it is not a formal rule and carries no legal force.
Putting It Into Practice: This development comes as Congress considers legislation to establish a regulatory framework for stablecoins. The House Financial Services Committee recently advanced the STABLE Act with bipartisan support (previously discussed here). The SEC's also announcement comes amid a broader trend of various federal regulators recalibrating their approach to digital assets (previously discussed here, here, and here). As stablecoin regulation begins to take shape, market participants should continue to carefully monitor this space for further developments.
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