US SEC Grants Exemption for Covered Stablecoins from Securities Regulations

In a significant move to clarify the application of federal securities laws to crypto assets, the US Securities and Exchange Commission (SEC) Division of Corporation Finance has released a statement focused on a specific type of digital currency known as stablecoins. This guidance is crucial for understanding how these assets operate within the regulatory framework.

What are Covered Stablecoins?

Covered stablecoins are designed to maintain a stable value relative to the US dollar (USD), specifically on a one-for-one basis. They are:

• Redeemable for USD
• Backed by low-risk, liquid assets held in reserve
• Primarily used for payments, money transfers, or value storage

Key Clarifications from the SEC

The SEC’s recent statement provides important distinctions regarding the classification of these assets:

• Covered stablecoins are not classified as securities under the Securities Act of 1933 or the Securities Exchange Act of 1934.
• Transactions involving the creation (minting) and redemption of Covered Stablecoins do not require registration with the SEC.

Legal Evaluations of Covered Stablecoins

The SEC evaluated Covered Stablecoins using two primary legal tests:

The Reves “Family Resemblance” Test

Under this analysis, the SEC found that:

• Buyers are not motivated by profit or investment returns.
• Consumers utilize stablecoins for commercial transactions, aligning with typical consumer behavior.

The Howey “Investment Contract” Test

The SEC concluded that:

• Covered Stablecoins do not qualify as investment contracts.
• Purchasers seek them for their utility in everyday activities rather than for profit from the efforts of others.

Reserve Management and Transparency

To ensure consumer trust, issuers of Covered Stablecoins maintain a reserve of USD and/or low-risk liquid assets. Key points regarding reserve management include:

• The reserve is separate from the issuer’s operational funds.
• Assets are not used for speculative trading or business activities.
• Some issuers provide proof of reserves to demonstrate their ability to meet redemption requests.

Impact on the Crypto Industry

The SEC’s guidance significantly enhances the clarity surrounding the use of Covered Stablecoins, reinforcing that they are not governed by federal securities laws when used as intended. This clarification is essential for:

• Businesses engaging with stablecoins
• Consumers using these digital assets for transactions

By promoting regulatory compliance, this guidance aims to support the ongoing development of the crypto asset industry.

For more detailed information, visit the SEC’s official website.