SEC clarifies that most stablecoins are not securities

The Securities and Exchange Commission issued a statement on Friday, clarifying that it does not deem certain stablecoins to be securities.

Specifically, the agency’s Division of Corporate Finance refers to stablecoins that are “designed to maintain a stable value relative to the United States Dollar, or ‘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” – which it calls “covered stablecoins.”

“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,” the SEC said.

The clarification comes as the stablecoin sector of crypto has been ramping up on increasing optimism that Congress will pass its first piece of crypto legislation this year, and that it will focus on stablecoins. President Donald Trump has said he hopes lawmakers will send stablecoin legislation to his desk before Congress’s August recess.

Interest payments, stablecoins and the SEC

The SEC’s definition of a covered stablecoin does not allow for interest payments by the issuer to the user. “While earnings on these assets, such as interest, may be used by a Covered Stablecoin issuer at its discretion, no such earnings are paid to Covered Stablecoin holders,” the statement says.

That’s a topic Coinbase CEO Brian Armstrong is hoping Congress will change. He spoke on CNBC earlier this week, saying he’s “concerned about this idea that consumers cannot get interest on stablecoins” – doing so would make the issuer subject to securities law, he explained in a lengthy X post – and that he’d “like to see legislation that allows that.”

There are two competing pieces of stablecoin legislation now waiting on a full vote. This week, the House Financial Services Committee passed the Stablecoin Transparency and Accountability for a Better Ledger Economy Act (STABLE). Sen. Tim Scott, R-S.C, and Bill Hagerty, R.-Tenn., introduced the competing Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS) in February, and it was approved by the Senate Banking Committee last month.

Stablecoins are widely viewed as the next killer app for crypto. Their market has grown about 11% this year and about 47% in the past year. Tether and USD Coin dominate the market. Historically, they’re used for trading and as collateral in decentralized finance (DeFi), and crypto investors watch them closely for evidence of demand, liquidity and activity in the market. Increasingly, they’ve become more attractive to individual users and financial institutions alike for payments.

Outside of covered stablecoins, the universe of yield-bearing stablecoins – which the SEC implies would fall under securities law – has been “growing exponentially post the U.S. election, with the market cap of the five biggest surpassing $13 billion, or 6% of the total stablecoin universe,” according to JPMorgan.

The SEC’s regulatory guidance caps a busy week for stablecoin issuers. Circle, the issuer of the USDC filed for an initial public offering this week. If successful, it would be one of the most prominent pure-play crypto companies to list on a U.S. exchange, after Coinbase went public in 2021 through a direct listing.

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