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The US Securities and Exchange Commission (SEC) has clarified its stance on certain US dollar-backed stablecoins, stating that their offer and sale do not constitute securities transactions under federal law, so long as they meet specific criteria.
In a statement issued by the Division of Corporation Finance, the SEC outlined its view that “Covered Stablecoins”, crypto-assets pegged 1:1 to the US dollar and fully backed by low-risk, highly liquid reserves, fall outside the definitions of a “security” as defined under the Securities Act of 1933 and the Securities Exchange Act of 1934.
“Covered Stablecoins are crypto assets designed and marketed for use as a means of making payments, transmitting money, or storing value,” the statement said. “They are designed to maintain a stable value relative to USD and are backed by USD and/or other assets that are considered low-risk and readily liquid so as to allow a Covered Stablecoin issuer to honor redemptions on demand.”
The guidance released by the US federal regulator applies to stablecoins redeemable at a fixed rate of one stablecoin to one US dollar and are fully backed by reserves composed of US dollars and/or other low-risk, highly liquid assets.
According to the SEC, these stablecoins must be structured to allow for unlimited minting and redemption at a fixed price, with the issuer ready to exchange them for USD on a one-to-one basis at any time.
The SEC emphasised that these stablecoins are not marketed as investment opportunities or vehicles for profit.
Instead, they are commonly referred to as “digital dollars” and are intended for use in payments, money transfers or as a store of value.
Due to this, they do not provide holders with rights to interest, profits, ownership or governance, and typically, these stablecoins are issued by entities that can redeem them at par value, either directly or through designated intermediaries.
To come to this conclusion, the SEC applied two key Supreme Court tests, Reves v Ernst & Young and SEC v W.J. Howey Co, to assess whether the stablecoins in question qualify as securities.
Under the Reves “family resemblance” test, it concluded they are not securities because they are issued for consumer rather than investment purposes, are not designed to encourage speculative trading, are not marketed as investments, and are backed by redemption reserves that mitigate risk, reducing the need for federal securities regulation.
Under the Howey test, which considers whether an asset is sold as an “investment contract”, the SEC found that buyers of these stablecoins are not motivated by profit or dependent on the efforts of others, but instead use them as a stable digital substitute for the US dollar.
Legal clarity finally?
Where once the US regulatory approach was incredibly hard to navigate, with accusations of regulation by enforcement, the situation is now becoming clearer, much to the benefit of crypto firms and financial services providers more broadly.
The SEC’s statement carries significant implications for multiple stakeholders in the stablecoin ecosystem, including issuers and crypto firms, but also stakeholders keen to get involved, such as financial institutions.
In March, for example, the Bank of America’s CEO said that he was keen to see the bank launch a stablecoin. JP Morgan, meanwhile, launched JPM Coin some time back.
For stablecoin issuers, the guidance offers reassurance that stablecoins meeting specific criteria, namely, being fully backed by low-risk, liquid reserves and redeemable at a fixed rate of one-to-one with the US dollar, are unlikely to be classified as securities.
This alleviates legal uncertainty and regulatory burden, particularly around registration requirements under the Securities Act.
However, it also places an implicit compliance obligation on issuers to maintain high operational standards, especially in areas such as reserve management and redemption mechanisms.
For banks and financial institutions interested in investing in or offering stablecoin-related services, the SEC’s stance lowers some of the legal barriers to engagement. For example, stablecoins that do not fall under securities regulation could be more easily integrated into payment systems, used for settlement or offered to clients without triggering the need for broker-dealer or investment advisor registration.
However, these players need to keep in mind that prudential regulators such as the Federal Reserve and the Office of the Comptroller of the Currency may still impose parallel requirements around risk management, reserve custody and consumer protection, which banks will need to navigate carefully.
For crypto companies that issue, trade or build services around stablecoins, the statement provides a clearer regulatory lane for certain stablecoins to function as transactional tools rather than investment products.
Overall, this sort of regulatory clarity could accelerate innovation in areas such as cross-border payments and merchant services. The Trump administration explicitly ruled out a central bank digital currency early on in his latest tenure in the White House, but seemingly sees crypto, particularly that which is US backed as a vehicle for monetary modernisation.
This sort of work from the SEC could continue the dominance of the dollar via US dollar-backed stablecoins.
