US SEC Rules Dollar-Backed Stablecoins Are Not Securities Under Federal Laws

US SEC clarifies stablecoins backed 1:1 by USD are not securities, highlighting their use in commerce and requiring a reserve for stability.
Solana And Aptos Emerge As Preferred Blockchain Choice For Wyoming Stablecoin

Highlights

  • SEC clarifies that stablecoins backed 1:1 by USD aren't securities, focusing on commerce, not investment returns.
  • Covered Stablecoins must maintain U.S. dollar reserves, ensuring redemption at a 1:1 ratio, no speculative use.
  • SEC applies Reves & Howey tests, confirming Covered Stablecoins as commercial instruments, not securities.

The U.S. Securities and Exchange Commission (SEC) has clarified that certain stablecoins, specifically those backed one-to-one by the U.S. dollar, do not qualify as securities under federal laws. This decision helps provide greater regulatory clarity in the growing field of cryptocurrency and blockchain technology.

Advertisement
Advertisement

US SEC Defines Covered Stablecoins

In a recent statement, after the US SEC’s incoming chair got voted in by the Senate committee, the Division of Corporation Finance defined “Covered Stablecoins” as those stablecoins that maintain a stable value relative to the U.S. dollar. These tokens are backed by assets held in a reserve, which are low-risk and highly liquid, ensuring that they can always be redeemed for U.S. dollars at a one-to-one ratio.

The SEC has noted that such stablecoins are intended to be used for payment, transferring of money and for value storage rather than being investment products.

The SEC provided an opinion that the process of minting and redeeming these stablecoins does not fall under the Securities Act or the Securities Exchange Act. Consequently, any parties that engage in the issuance and circulation of these stablecoins are not regulated nor required to abide by the US securities laws or register with the US SEC.

Advertisement
Advertisement

Marketing of Stablecoins Clarified

The US SEC further detailed that Covered Stablecoins are marketed as a stable and reliable medium of exchange, with no promise of profits or returns. In its statement, the SEC noted that these are not advertised as investments and do not provide holders with any governance rights or financial returns based on the issuer’s performance.

By clarifying the marketing strategies surrounding these stablecoins, the SEC aims to prevent any confusion about their classification as securities. This moves comes post the U.S. passing the STABLE Act, establishing a regulatory framework for USD-pegged.

The SEC’s statement also addresses the importance of maintaining a stable value relative to the U.S. dollar. These stablecoins are not meant to fluctuate in price like other cryptocurrencies, such as Bitcoin or Ethereum. As a result, their primary role is to facilitate transactions and act as a stable store of value rather than to generate financial returns for holders.

Advertisement
Advertisement

Reserve Requirements for Stablecoins

The SEC further elaborated that Covered Stablecoins are presented as a stable store of value and medium of exchange that cannot faithfully fill the role of a security promising profits or returns. The SEC, in its statement, stated that they are not promoted as an investment and they do not give the holders any rights or any type of financial returns on the issuer.

In this respect, the mission of the US SEC is to define the marketing strategies concerning them in order to avoid any misunderstanding of their nature.

The SEC also gives emphasis on the company maintaining stable price that does not fluctuate with the U.S dollar. These coins are relatively stable compared to other cryptocurrencies like the Bitcoin or the Ethereum because they are designed to have fixed values. Consequently, their main functions are to be used as a medium of exchange and serve as a unit of account instead of producing revenue for owners.

SEC’s Application of Reves and Howey Tests

According to the findings of the legal analysis, the defends used two legal benchmarks known as Reves and Howey tests to establish if the asset is a security. Under the Reves test, the SEC has held that Covered Stablecoins are akin to traditional commercial instruments as opposed to securities. Another reason is the Howey test that emphasizes that these buyers use these assets for commercial reasons with the expectation of gains other than in the form of profits.

Based on its decision, the SEC decided that Covered Stablecoins do not fall under the securities definition under the federal securities laws. This decision is founded on the fact they are mainly used as a medium of exchange, and not as an investment vehicle backed by readily saleable assets.

This clarification from the SEC comes as Congress continues to work on cryptocurrency legislation. While the SEC’s stance provides clarity on stablecoins, it does not address other digital assets, such as yield-bearing tokens, which may fall under securities regulations. The move aligns with ongoing efforts in the U.S. government to regulate digital assets and cryptocurrency more comprehensively.

Advertisement
Kelvin Munene Murithi
Kelvin Munene is a crypto and finance journalist with over 5 years of experience, offering in-depth market analysis and expert commentary . With a Bachelor's degree in Journalism and Actuarial Science from Mount Kenya University, Kelvin is known for his meticulous research and strong writing skills, particularly in cryptocurrency, blockchain, and financial markets. His work has been featured across top industry publications such as Coingape, Cryptobasic, MetaNews, Cryptotimes, Coinedition, TheCoinrepublic, Cryptotale, and Analytics Insight among others, where he consistently provides timely updates and insightful content. Kelvin’s focus lies in uncovering emerging trends in the crypto space, delivering factual and data-driven analyses that help readers make informed decisions. His expertise extends across market cycles, technological innovations, and regulatory shifts that shape the crypto landscape. Beyond his professional achievements, Kelvin has a passion for chess, traveling, and exploring new adventures.
Why trust CoinGape: CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights to our readers. Our journalists and analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.