SEC Declares “Covered Stablecoins” Outside Its Jurisdiction

The U.S. Securities and Exchange Commission (SEC) has issued new commentary regarding stablecoins, with the agency’s Division of Corporation Finance emphasizing that this initiative aims to enhance regulatory clarity.

The SEC stated in a recent news release that the guidance is in line with its mission to clarify federal securities laws in relation to crypto assets. Specifically, the agency is focusing on a category of stablecoins it refers to as “Covered Stablecoins.”

According to the regulator, “Covered Stablecoins” are defined as those stablecoins that maintain a stable value against the U.S. dollar on a 1:1 basis and are redeemable for USD at the same rate.

This category of USD-pegged stablecoin, as per the SEC’s Division of Corporation Finance, is backed by low-risk, readily liquid assets. The assets backing these stablecoins must possess a USD-value that equals or exceeds the total redemption value of all tokens in circulation.

Importantly, the statement makes clear that it does not include other types of stablecoins, such as algorithmic and yield-bearing stablecoins. It also does not address stablecoins that are pegged to the value of assets other than the U.S. Dollar.

The two primary stablecoins pegged to the USD are Tether (USDT) and USDC (USDC).

With this framework established, the SEC asserts that the sale or offering of “Covered Stablecoins” does not qualify as an investment contract.

“The Division believes that the offer and sale of Covered Stablecoins, as outlined in this statement, do not encompass the offer and sale of securities under Section 2(a)(1) of the Securities Act of 1933,” stated the division.

Now that the division has clarified that such stablecoins fall outside the SEC’s jurisdiction, the goal of its statement was to elucidate crucial considerations and implications for issuers.

Key points highlighted in the statement indicate that issuers are expected to use the proceeds from sales to fund the reserves of the Covered Stablecoins. Additionally, buyers should not expect any returns from the funds they hold, and Covered Stablecoins do not promote speculative trading or investment.

“Consequently, individuals involved in the process of ‘minting’ (or creating) and redeeming Covered Stablecoins are not required to register those transactions with the Commission under the Securities Act, nor do they fall within any exemption from registration provided by the Securities Act,” the agency clarified.