SEC Clarifies: Covered Stablecoins Not Classified as Securities

The U.S. Securities and Exchange Commission (SEC) has announced that “Covered Stablecoins” are not considered securities, providing a significant regulatory clarification for the crypto industry. This decision could pave the way for increased adoption and innovation in the stablecoin sector.

• SEC excludes Covered Stablecoins from securities classification
• Stablecoins must be pegged to USD on a 1:1 basis and backed by low-risk assets
• Algorithmic and yield-bearing stablecoins not covered by the guidance

On April 4, 2025, the SEC’s Division of Corporation Finance issued a statement that Covered Stablecoins, which are pegged to the U.S. dollar on a 1:1 basis and backed by low-risk, liquid assets, do not fall under the jurisdiction of the Securities Act of 1933 or the Exchange Act of 1934. This guidance aims to provide regulatory clarity, stating that the sale or offer of these stablecoins does not constitute an investment contract. The full text of the SEC guidance on Covered Stablecoins is available for review.

Covered Stablecoins are designed to be redeemable for USD on a 1:1 basis, with the assets backing them required to have a USD-value that meets or surpasses the redemption value of all coins in circulation. Think of it like a digital dollar that’s always worth a dollar, backed by safe assets like cash or government bonds. This structure ensures stability through a fixed-price, unlimited mint-redeem mechanism, allowing for opportunities to buy low and sell high to keep the price stable.

However, the SEC’s guidance explicitly excludes other types of stablecoins, such as algorithmic and yield-bearing ones, as well as those pegged to assets other than the U.S. dollar. This distinction underscores the complexities of regulating different crypto assets. Leading stablecoins like Tether (USDT) and USDC, which are pegged to the USD, fall under the category of Covered Stablecoins and thus are not subject to SEC registration requirements.

The SEC’s statement reads:

“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.”

Furthermore, it clarifies:

“Accordingly, persons involved in the process of ‘minting’ (or creating) and redeeming Covered Stablecoins do not need to register those transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration.”

This guidance comes at a time when the regulatory landscape for cryptocurrencies is evolving rapidly. The crypto industry has been seeking clarity on how various digital assets, including stablecoins, fit into existing regulatory frameworks. This statement from the SEC is a step toward providing such clarity, particularly in distinguishing between different types of stablecoins and their regulatory treatment. For more detailed discussions, you can visit the SEC Covered Stablecoins discussion on Reddit.

However, not all within the SEC agree with this approach. Commissioner Caroline Crenshaw dissented from the Staff’s statement, arguing that it underestimates the risks associated with stablecoins and misinterprets the law. Her dissent highlights a division within the SEC on the regulatory approach to stablecoins, emphasizing the need for a more cautious stance. Navigating the crypto regulatory landscape is like trying to solve a Rubik’s Cube in the dark—challenging, but not impossible.

While the SEC’s guidance is a step toward regulatory clarity, it does not address the Investment Company Act of 1940, leaving open the question of whether stablecoin issuers could be subject to regulation as investment companies. Additionally, even if not classified as securities, large stablecoins could pose systemic risks, prompting calls for a federal prudential regime. For more insights on the impact of stablecoins, check out the discussions on Quora.

Legal experts, such as those from Shearman & Sterling, emphasize that the SEC’s guidance is not a rule or safe harbor but rather staff-level guidance without legal force. This underscores the need for issuers to remain vigilant about compliance with existing laws. The marketing of Covered Stablecoins as digital dollars for use in commerce, payments, and value storage, rather than as investments, is crucial to their exclusion from securities regulation. For an expert analysis on the exclusion of algorithmic stablecoins, refer to this article.

The assets backing Covered Stablecoins must be held in a segregated reserve and not used for the issuer’s other business purposes. This strict reserve management is a key factor in maintaining the stablecoin’s value and regulatory status. Meanwhile, legislative proposals like the STABLE Act and GENIUS Act are being considered by Congress, which could establish a comprehensive regulatory framework for stablecoin issuers. These proposals reflect ongoing debates about the appropriate regulation of stablecoins and could significantly impact the future regulatory landscape. For more on proposed regulatory frameworks, see this article.

As the crypto world continues to evolve, this guidance from the SEC is like a flashlight in a dark room—helpful, but it doesn’t illuminate every corner. It’s a reminder that while the path to mainstream adoption is fraught with challenges, the potential for stablecoins to revolutionize finance remains undiminished. But let’s not kid ourselves—regulatory battles are far from over, and the crypto space will continue to be a wild ride. For a comprehensive overview of stablecoin regulation, visit the SEC Covered Stablecoins regulation wiki.

Key Takeaways and Questions

• What are Covered Stablecoins?

  Covered Stablecoins are stablecoins that maintain a stable value relative to the U.S. dollar on a 1:1 basis and are redeemable for USD on the same basis. They are backed by low-risk and readily liquid assets.

• Why did the SEC release this guidance?

  The SEC released this guidance to provide regulatory clarity regarding federal securities laws as they relate to crypto assets, specifically to clarify that Covered Stablecoins do not fall under its jurisdiction as securities.

• Which types of stablecoins are excluded from this guidance?

  Algorithmic and yield-bearing stablecoins, as well as those pegged to assets other than the U.S. dollar, are excluded from this guidance.

• Do issuers of Covered Stablecoins need to register with the SEC?

  No, issuers of Covered Stablecoins do not need to register with the SEC under the Securities Act.

• What are the leading stablecoins pegged to the USD mentioned in the guidance?

  The leading stablecoins pegged to the USD mentioned are Tether (USDT) and USDC.