- SEC says some stablecoins are not securities if fully backed and redeemable one to one with US dollars.
- Covered Stablecoins must not offer profit or governance rights and must act only as exchange mediums.
- Algorithmic stablecoins are excluded from the new SEC guidance and remain under regulatory uncertainty.
The U.S. Securities and Exchange Commission has issued fresh guidance on how it will regulate stablecoins. The announcement, released on April 4, clarified that some stablecoins will not be treated as securities under federal law.
These stablecoins are now referred to as “Covered Stablecoins,” and are exempt from standard securities regulations. The SEC also confirmed that transactions involving these tokens will not require regular reporting. This decision marks a significant change in how dollar-pegged tokens are viewed within financial regulations.
Covered Stablecoins Must Meet Strict Conditions
To qualify as a Covered Stablecoin, the token must meet several specific conditions. It must be fully backed by physical fiat currency or highly liquid, low-risk financial instruments. Additionally, the stablecoin must be redeemable on a one-to-one basis with the U.S. dollar.
The SEC also noted that these tokens must be marketed only as stable mediums of exchange. There should be no promises of investment returns or profit. Holders must not gain any governance rights or financial interest from the issuer’s operations. This effectively excludes any token designed for speculation or investment.
Algorithmic Stablecoins Excluded from New Status
The updated classification does not include algorithmic stablecoins. These tokens rely on automated mechanisms or software to maintain their price stability. Hence, they do not meet the SEC’s criteria for Covered Stablecoins.
The SEC also did not extend the exemption to synthetic dollars or fiat tokens that offer interest. These products still face regulatory uncertainty. Their legal status will depend on how they are structured and promoted in the market.
SEC Applied Reves and Howey Tests in Evaluation
The agency used two established legal tests to assess the stablecoins. Under the Reves test, the SEC found that Covered Stablecoins resembled commercial payment tools. These tokens are not traded for profit and do not function like investment vehicles.
Using the Howey test, the SEC further found that holders do not expect profits from the actions of others. These transactions mirror typical consumer exchanges rather than investment contracts. As a result, the tokens do not qualify as securities under this framework.
Commissioner Crenshaw Opposes New Guidance
SEC Commissioner Caroline Crenshaw criticized the decision and raised several concerns. She argued the statement misrepresented key facts about the USD-stablecoin market. She also said the risks were not fully addressed.
Crenshaw noted that most stablecoins reach retail users through secondary market intermediaries. These include crypto trading platforms and exchanges. She warned that this distribution model poses unique regulatory challenges. She believes it should influence how regulators evaluate risk in this sector.
