The U.S. Securities and Exchange Commission issued new guidance for stablecoins on Friday, advising in a statement that certain types of dollar-pegged tokens are not considered securities in the Commission’s view.
However, the SEC notably declined to offer a perspective on yield-bearing and algorithmic stablecoins, leaving the door open for interpretation on the agency’s behalf further down the line.
The SEC statement only covers stablecoins that are “designed to maintain a stable value relative to the United States Dollar […], 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.”
Such coins, according to the SEC, “do not involve the offer and sale of securities.”
Stablecoins are digital assets pegged to the price of a fiat currency, such as the U.S. dollar. Their value is often backed by liquid assets, including cash and U.S. Treasuries, although some may be backed by Bitcoin or even gold.
Issuers Tether (USDT) and Circle (USDC) dominate the stablecoin sector, managing reserves for products valued at $145 billion and $61 billion, respectively, according to the crypto data provider CoinGecko.
Under former SEC Chair Gary Gensler, stablecoins existed in a legal gray area. Because investors often use stablecoins as a way to park funds and avoid crypto market volatility, the crypto critic once described them as nothing more than digital “poker chips.”
With stablecoin legislation currently being weighed on Capitol Hill, a slew of financial institutions are poised to dive into the space, including Bank of America. Some experts foresee as many as 1,000 new stablecoins being launched within a year of federal stablecoin rules being established.
The SEC’s guidance on stablecoin follows agency commentary on meme coins and NFTs last month. The regulator said that most meme coins and NFTs would not be considered securities based on the agency’s application of the so-called Howey Test.
Stablecoin legislation currently being debated in the House of Representatives and Senate does not allow for interest-bearing stablecoins. While Coinbase CEO Brian Armstrong has pushed for looser rules, Rep. French Hill (R-AR), chair of the powerful House Financial Services Committee, said the exclusion was a bipartisan starting point.
Algorithmic stablecoins are a unique class of stablecoins that aren’t backed by any assets. Instead, they often seek to maintain a stable price using a series of trading incentives.
One of the most notorious algorithmic stablecoins was TerraUSD, which shredded more than $40 billion worth of investors’ wealth as it collapsed over the course of a few days in 2022.
Lawmakers in the House Financial Services Committee held a markup session for the so-called STABLE Act earlier this week, which would establish a pathway to legality for stablecoin issuers across the U.S., both new and old.
However, lawmakers spent much of the markup focused on U.S. President Donald Trump’s personal involvement in the stablecoin sectors and potential conflicts of interest.
Editor’s note: This story was updated after publication with additional detail.
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