The US SEC has just announced that certain US-dollar-backed stablecoins are NOT considered securities.
These assets include stablecoins designed to maintain 1: 1 values with the US dollar and can be redeemed for US dollars at any time.
Stablecoins are one of the fastest-growing market sectors, expanding by 11% since the beginning of the year and 47% over the past 12 months.
The exception to this rule is that if an issuer pays holders interest, the stablecoin immediately becomes a security.
If Congress can agree on the STABLE or GENIUS Acts, stablecoins could go mainstream and unlock trillions in liquidity for the market as a whole.
In one of the biggest developments within the crypto space last week, the US Securities and Exchange Commission has just announced that certain US-dollar-backed stablecoins are NOT considered securities.
These stablecoins, including USDC and USDT, might now be exempt from the harsh securities laws often targeted at cryptocurrencies within the US.
The decision, which was laid out by the agency’s Division of Corporation Finance, shows a major turning point for the crypto industry, especially when it comes to mainstream adoption.
Here is what the SEC's new guidance means and how it could shape the future of digital payments in the US.
According to the SEC’s statement, the agency is introducing a classification of stable assets called “Covered Stablecoins.”
These assets include stablecoins designed to maintain 1: 1 values with the US dollar and can be redeemed for US dollars at any time.
Update on stablecoins | Source: Twitter
This means that if a stablecoin is fully backed by a reserve of liquid assets and functions like digital cash, then said asset is not considered a security.
More importantly, the SEC’s statement shows that the offer and sale of these assets do not constitute securities offerings.
As such, they do not fall under the same regulatory framework that applies to trad-fi products.
The recent update from the SEC comes amid a surge in stablecoin adoption in the US, along with rising pressure from lawmakers for clear regulations when it comes to crypto.
It is important to understand that stablecoins are only one of the aspects of the crypto market.
However, they are also one of the fastest growing sectors, with the market having expanded by around 11% since the beginning of the year and nearly 47% over the past 12 months.
More interestingly, stablecoins like Tether’s USDT and Circle’s USDC are already deeply embedded in aspects like crypto trading and even payment systems.
They have become important tools for liquidity and cross-border payments. More importantly, they are widely responsible for the market's stability during times of high volatility.
This new update from the SEC could increase their use cases in traditional finance as well, including banks and other middle parties.
Another major component of the SEC’s definition of “covered stablecoins” is that these cryptocurrencies must also not generate income for their holders.
In essence, if a stablecoin generates a yield of any kind for its holders, it might be exempt from this “covered stablecoins” classification.
While issuers might earn interest on these assets held in reserve, the SEC emphasizes that this interest should not be shared with stablecoin users.
As such, if the issuer were to pay any kind of interest to holders, the stablecoin in question immediately becomes a security.
This interest payment could trigger everything from lawsuits to compliance requirements under federal law.
Not everyone is satisfied with this update from the SEC though.
According to Coinbase CEO Brian Armstrong, consumers should be allowed to earn interest on their holdings.
“I’d like to see legislation that allows that,” Armstrong said recently. He noted that the ability to earn yield would make stablecoins more useful and competitive.
On the other hand, provisions under current laws would make them more subject to complex securities regulations.
The SEC’s announcement isn’t happening in a vacuum though.
Lawmakers in both the House and Senate are currently working on two major stablecoin bills:
The first of these is the STABLE Act (Stablecoin Transparency and Accountability for a Better Ledger Economy Act), which was just passed by the House Financial Services Committee.
The second bill is called the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), which was introduced by Senators Tim Scott and Bill Hagerty and was recently approved by the Senate Banking Committee.
The GENIUS act | Source: Twitter
Both of these bills aim to create a solid framework for issuing or using stablecoins in the US, especially when it comes to reserve requirements and transparency.
Even US President Donald Trump has weighed in and stated that he hopes to sign stablecoin legislation into law before Congress breaks for its August recess.
The recent update from the SEC is good news in many cases, especially for crypto developers and payment platforms.
For example, businesses that mint or redeem covered stablecoins no longer need to register their activity with the SEC.
Even Circle, the issuer of USDC, wasted no time acting on the momentum.
Soon after the SEC’s public release, the company filed for an initial public offering (IPO) this week.
So far, Circle aims to be one of the biggest publicly traded crypto companies in the U.S., just like Coinbase did in its 2021 IPO.
There are limits to this “good news” though.
Not all stablecoins fall under this protective umbrella. The so-called “yield-bearing” stablecoins, which do not fall under this “covered stablecoins” classification could still be considered securities.
JPMorgan recently reported that the market cap for the five largest yield-bearing stablecoins is already above the $13 billion mark, and has grown quickly post-election.
These coins represent around 6% of the total stablecoin market and could remain in regulatory limbo.
The SEC's recent statement shows that regulators are starting to draw lines between different kinds of crypto assets, especially between payment-focused tools and investment vehicles.
The new update is great news for institutions and everyday users who want to take advantage of crypto, without having to deal with volatility.
Furthermore, it also puts the spotlight on U.S. lawmakers.
If Congress can agree on the STABLE or GENIUS Acts, stablecoins could go mainstream and unlock trillions in liquidity for the market as a whole.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.