SEC: Dollar-Backed Stablecoins Aren't Securities
The U.S. Securities and Exchange Commission (SEC) recently issued a statement clarifying the regulatory status of certain stablecoins. Specifically, the SEC determined that stablecoins maintaining a one-to-one peg with the U.S. dollar, and meeting specific criteria, do not qualify as securities under federal law.
SEC Defines 'Covered Stablecoins'
The SEC's Division of Corporation Finance defined "Covered Stablecoins" as those maintaining a stable value relative to the U.S. dollar. These tokens are backed by low-risk, highly liquid assets, ensuring redeemability at a 1:1 ratio. The SEC emphasized that these stablecoins are intended for payments, money transfers, and value storage—not as investment products. The minting and redemption processes, according to the SEC, don't fall under the Securities Act or Securities Exchange Act. Issuers and circulators of Covered Stablecoins are therefore not subject to US securities laws or SEC registration requirements.
Marketing and Stable Value
The SEC highlighted that Covered Stablecoins should be marketed as a stable medium of exchange, devoid of promises of profits or returns. They are not to be advertised as investments and shouldn't offer holders governance rights or financial returns based on issuer performance. This clarification aims to prevent confusion and aligns with the recently passed STABLE Act, which establishes a regulatory framework for USD-pegged stablecoins.
The SEC stresses the importance of maintaining a stable value against the U.S. dollar. Unlike cryptocurrencies like Bitcoin or Ethereum, these stablecoins are not intended to fluctuate significantly in price, serving primarily as transaction facilitators and stable stores of value.
Reserve Requirements and Legal Tests
The SEC's statement emphasizes that Covered Stablecoins, marketed as a stable store of value and medium of exchange, do not meet the definition of a security promising profits or returns. The SEC applied the Reves and Howey tests to determine this. The Reves test indicated that Covered Stablecoins are similar to traditional commercial instruments rather than securities. The Howey test showed that buyers utilize these assets for commercial purposes, not primarily for profit.
Based on this analysis, the SEC concluded that Covered Stablecoins do not fall under the federal securities laws' definition of a security. This is primarily due to their function as a medium of exchange rather than an investment vehicle.
Implications and Future Regulation
This SEC clarification provides much-needed clarity regarding stablecoin regulation, but it doesn't address other digital assets, such as yield-bearing tokens, which may still fall under securities regulations. The SEC's stance reflects broader U.S. government efforts to regulate the cryptocurrency market more comprehensively.
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