SEC Issues Statement on Stablecoins

In early April, the Securities and Exchange Commission (SEC) Division of Corporate Finance released a “Statement on Stablecoins” which highlights the Commission’s view on “Covered Stablecoins.” The release defines “Covered Stablecoins” as those that are “designed to maintain a stable value relative to the United States Dollar (USD) on a one-for-one basis, can be redeemed for USD on a one-for-one basis, and are backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation.” It is the Commission’s view that a Covered Stablecoin offering does not involve the offer or sale of securities and therefore those transactions are exempt from registration.

The release outlines several reasons why the Covered Stablecoins, as described in the statement, are exempt from registration including, how they are marketed and the reserve that is held in order to allow for redemptions. Additionally, the statement walks through two separate legal analyses including Reeves (whether a note is a security) and the Howey test (whether an instrument is an investment contract) and determined that Covered Stablecoins are neither a security nor an investment contract. The statement notes “buyers are motivated to use or consume Covered Stablecoins as so-called “digital dollars” in the same way one would use USD.”

In response to the Statement on Stablecoins, Democratic Commissioner Caroline Crenshaw stated the analysis provided under Reeves is incorrect, and that “there is nothing equivalent about the U.S. dollar and unregulated, privately-issued crypto assets that are opaque (clearly even to the staff), uncollateralized, uninsured, and laden with risk at every step of their multi-layer distribution chain.”  

On Capitol Hill, the GENIUS Act, introduced by Senator Bill Hagerty (R-TN), is facing Democratic opposition after clearing the Senate Banking Committee with some Democratic support. After new revisions were released, nine Senate Democrats on Saturday said they would not support the newly amended proposal. The bill would create a comprehensive regulatory framework for stablecoins, including the creation of licensing and regulatory requirements for stablecoin issuers at both the federal and state levels. A House Republican bill, the STABLE Act, which similarly creates a regulatory framework around stablecoins was voted out of the House Financial Services Committee on April 2, but has yet to reach the House floor for a vote. While both bills address stablecoins the language in each bill does not mirror the other, and thus a compromise would need to be reached between the House and Senate proposals.

Click here to view the SEC’s “Statement on Stablecoins.”
Click here to view Caroline Crenshaw’s remarks on the “Statement on Stablecoins.”