SEC declares some stablecoins as not being securities

According to a recent statement from the U.S. Securities and Exchange Commission (SEC), stablecoins that are pegged to the U.S. dollar and can be exchanged for USD on a one-to-one basis will not be considered securities. This clarification by the SEC’s Division of Corporation Finance provides much-needed clarity to the crypto industry. The SEC defines these stablecoins as “Covered Stablecoins,” which are backed by low-risk and highly liquid assets, maintaining a stable value tied to the dollar.

Companies that issue or redeem these stablecoins will not be required to register these transactions with the SEC. The SEC highlighted that the process of minting and redeeming Covered Stablecoins does not fall under the Securities Act’s registration requirements or exemptions. These stablecoins are designed to mitigate market volatility and provide a stable medium of exchange for everyday transactions, remittances, and value storage.

Covered Stablecoins are primarily used for payment, money transfers, and storing value. Maintaining a one-to-one peg with the U.S. dollar, these stablecoins are always redeemable at the same rate. The companies issuing these tokens assure users of unlimited minting and redemption capabilities, backed by a secure reserve of assets supporting each token. Buyers of these stablecoins are not seeking profit but rather use them as digital dollars for sending and holding money.

While these stablecoins may be traded on secondary markets, their structure ensures price stability. Users can directly redeem tokens from the issuer to balance the market if there are price fluctuations, maintaining their value close to one dollar. The marketing of these stablecoins emphasizes their stability, speed, and reliability for money transfers, focusing on their utility rather than their potential for profit.

In its legal analysis, the SEC applied tests from key court cases to determine that Covered Stablecoins do not meet the criteria to be classified as securities. These tokens are considered to serve practical commercial purposes rather than investment objectives. This distinction offers regulatory clarity to stablecoin issuers and users, exempting them from securities regulations if their operations align with the SEC’s guidelines.

The SEC’s announcement comes at a time when stablecoin adoption is on the rise, with total market capitalization exceeding $220 billion and transaction volumes growing significantly. Former President Trump has voiced support for stablecoins as a way to bolster the U.S. dollar’s global influence, advocating for legislation that establishes clear regulatory frameworks for these digital assets. Bills like the GENIUS Act and the STABLE Act aim to enhance transparency, reserve requirements, and consumer protections for dollar-backed stablecoins.

Overall, the SEC’s stance on Covered Stablecoins provides regulatory certainty for the crypto industry and underlines the potential of stablecoins as a secure and stable medium of exchange in the digital economy.