US SEC Clarifies Some Stablecoins Are Not Securities

Highlights:

• SEC confirms some stablecoins are not securities and exempt from reporting rules.
• SEC says Covered Stablecoins are like commercial instruments, not speculative securities.
• Crenshaw criticizes SEC, claiming it misrepresents USD-stablecoin market and risks.

The U.S. Securities and Exchange Commission (SEC) has provided new guidance on the regulatory treatment of stablecoins. In a notice published on April 4, the agency confirmed that certain stablecoins would not be classified as securities. These assets are also exempt from transaction reporting requirements.

SEC refers to these as “covered stablecoins.” To qualify, the tokens must be fully backed by physical fiat reserves or by short-term, low-risk, highly liquid instruments. They must also be redeemable at a one-to-one ratio with the U.S. dollar.

SEC clarified that Covered Stablecoins are promoted as stable and reliable mediums of exchange. These tokens make no promises of profits or returns. The SEC emphasized that Covered Stablecoins are not marketed as investments. They also do not grant holders governance rights or offer financial returns based on the issuer’s performance.

The definition excludes algorithmic stablecoins, which use software or automated trading strategies to maintain their U.S. dollar peg. As a result, the regulatory status of algorithmic stablecoins, synthetic dollars, and yield-bearing fiat tokens remains unclear.

SEC Rules “Covered Stablecoins” Are Not Securities

The legal analysis found that the defense relied on two key legal tests, the Reves and Howey tests, to determine whether the asset qualified as a security. Under the Reves test, the SEC found that Covered Stablecoins resemble commercial instruments rather than speculative securities. The agency pointed out that buyers are not motivated by investment goals and do not trade for profit, which excludes them from being classified as securities. 

The SEC also applied the Howey test, which looks at whether there is an expectation of profit from others’ efforts. It concluded that holders of Covered Stablecoins are not investing for returns, and these transactions are more like consumer exchanges than investment contracts.

The SEC has determined that fully-reserved, liquid, dollar-backed stablecoins are not securities. Therefore blockchain transactions to mint or redeem them do not need to be registered under the Securities Act. Helpful clarity from @SECGov. pic.twitter.com/oUsq0snLaF

— David Sacks (@davidsacks47) April 4, 2025

Crenshaw Criticizes SEC’s Statement

On April 4, SEC Commissioner Caroline Crenshaw criticized the SEC’s stablecoin statement. She said it contained “legal and factual errors.” Crenshaw argued the statement misrepresented the USD-stablecoin market and downplayed its risks. She also disagreed with the SEC’s analysis.

The SEC focused on issuer actions that claimed to stabilize price, ensure redeemability, and reduce risk. Crenshaw disagreed with this view. The SEC briefly stated that intermediaries, not issuers, sell some USD-stablecoins.

She said: 

“It is the general rule, not the exception, that these coins are available to the retail public only through intermediaries who sell them on the secondary market, such as crypto trading platforms.”

Crenshaw pointed out that over 90% of USD-stablecoins are distributed through intermediaries. She emphasized that regulators should consider this distribution method when assessing stablecoin risks.

Many people in the crypto industry appeared optimistic about the clearer guidance on dollar-pegged coins. Ian Ballina, the founder of Token Metrics, mentioned that it seemed like a step toward focusing on the most important aspects of the crypto space.

SEC staff just clarified that most dollar stablecoins aren’t treated like securities since they’re built for everyday payments and storing value—not for investment plays.

Feels like a clear step in focusing on what really matters in the crypto space.

— Ian Balina (@DiaryofaMadeMan) April 4, 2025