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The U.S. Securities and Exchange Commission (SEC) has issued new commentary on stablecoins, providing additional regulatory clarity. The announcement comes from the SEC’s Division of Corporation Finance, which aims to outline how federal securities laws apply to certain types of stablecoins.

What Are “Covered Stablecoins”?

According to the SEC, “Covered Stablecoins” are a specific category of stablecoins that maintain a stable value relative to the U.S. dollar on a 1:1 basis. These stablecoins are fully redeemable for USD at the same ratio and are backed by low-risk, liquid reserve assets. The value of these reserves must meet or exceed the redemption value of all tokens in circulation.

Importantly, this definition excludes other types of stablecoins, such as algorithmic stablecoins and yield-bearing stablecoins. Additionally, stablecoins pegged to assets other than the U.S. dollar do not fall under this classification.

Key Takeaways from the SEC’s Guidance

The SEC’s Division of Corporation Finance clarified that the sale or offer of Covered Stablecoins does not qualify as an investment contract under federal securities laws. The division stated:

“It is the Division’s view that the offer and sale of Covered Stablecoins, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933.”

This clarification means that Covered Stablecoins, as defined, fall outside the SEC’s regulatory purview. The statement aims to provide clear guidance to issuers while addressing key considerations for compliance.

Implications for Issuers

Issuers of Covered Stablecoins must adhere to specific practices to maintain compliance. Key points include:

  • Proceeds from the sale of Covered Stablecoins must be used to fund their reserves.
  • Buyers of these stablecoins should not expect any returns on their holdings.
  • Covered Stablecoins are not intended for speculative trading or investment purposes.

Additionally, the SEC noted that transactions involving the minting or redemption of Covered Stablecoins do not require registration under the Securities Act. Such transactions are also exempt from the Act’s registration requirements.

Exclusions from the Definition

The SEC emphasized that its guidance does not apply to all stablecoins. Specifically, algorithmic stablecoins, yield-bearing stablecoins, and stablecoins pegged to non-USD assets are not included in the Covered Stablecoins category. This distinction narrows the scope of the guidance to USD-backed stablecoins with specific reserve requirements.

Market Leaders in USD-Pegged Stablecoins

The two leading USD-pegged stablecoins in the cryptocurrency market are Tether (USDT) and USD Coin (USDC). These stablecoins are widely used for trading, payments, and as a store of value. Both claim to maintain a 1:1 peg to the U.S. dollar and have established themselves as major players in the stablecoin landscape.

The SEC’s guidance may provide greater clarity for similar stablecoin projects aiming to comply with federal securities laws, potentially opening the door for broader adoption of compliant stablecoins.

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