Securities Exchange Commission Calls Certain Stablecoins Non-Securities
The Securities Exchange Commission declared that some stablecoins are not securities.
Stablecoins are “designed to maintain a stable value relative to the United States Dollar, or ‘USD,’ on a one-for-one basis, can be redeemed for USD on a one-for-one basis,” according to the agency’s Division of Corporate Finance, it refers to as “covered stablecoins” because they are supported by assets kept in reserve that are deemed low-risk and easily liquid, with a USD value that equals or surpasses the redemption value of the stablecoins in circulation.
SEC highlighted, “the Division believes that the sale and offer of Covered Stablecoins, as described in this statement, do not entail the sale and offer of securities.”.
This clarification comes as the stablecoin sector within crypto experiences heightened optimism that Congress will pass its first piece of crypto legislation this year, potentially focusing on stablecoins. President Donald Trump projected lawmakers would send stablecoin legislation to his desk before Congress’s August recess.
The SEC’s definition of a covered stablecoin does not permit interest payments by the issuer to the user. “While earnings on these assets, such as interest, may be utilized by a Covered Stablecoin issuer at its discretion, no such earnings are distributed to Covered Stablecoin holders.”
This is an issue that Coinbase CEO Brian Armstrong is urging Congress to address. Earlier this week, he expressed his concern that consumers cannot earn interest on stablecoins, which would subject the issuer to securities law, a point he elaborated on in a lengthy post on X and voiced his desire for legislation that permits this.
The House Financial Services Committee advanced the Stablecoin Transparency and Accountability for a Better Ledger Economy Act (STABLE). Sen. Tim Scott, R-S.C., and Bill Hagerty, R-Tenn., introduced a competing proposal, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS), in February; it was approved by the Senate Banking Committee last month.
Stablecoins are widely regarded as the next significant advancement for crypto. Their market has expanded approximately 11% this year and about 47% over the past year, with Tether and USD Coin dominating the market. Traditionally, they are used for trading and as collateral in decentralized finance (DeFi), and crypto investors monitor them closely for signs of demand, liquidity, and market activity.
Increasingly, they have become more appealing to individual users and financial institutions for payment purposes. Beyond covered stablecoins, the realm of yield-bearing stablecoins, the SEC suggests would fall under securities law, has been “growing exponentially post the U.S. election, with the market cap of the five largest surpassing $13 billion, or 6% of the total stablecoin universe,” as reported by JPMorgan.
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