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04/16/2025

SEC Clarifies: Certain Stablecoins Are Not Securities

In a landmark statement, the U.S. Securities and Exchange Commission (SEC), through its Division of Corporation Finance, officially confirmed that certain stablecoins — known as "Covered Stablecoins" — are not considered securities under U.S. federal law. What Is a Covered Stablecoin? According to the SEC's statement, a Covered Stablecoin must meet three specific criteria: 1. Pegged 1:1 to the U.S. dollar 2. Redeemable on demand at a fixed 1:1 ratio with

SEC Clarifies: Certain Stablecoins Are Not Securities

In a landmark statement, the U.S. Securities and Exchange Commission (SEC), through its Division of Corporation Finance, officially confirmed that certain stablecoins — known as "Covered Stablecoins" — are not considered securities under U.S. federal law.

What Is a Covered Stablecoin?

According to the SEC's statement, a Covered Stablecoin must meet three specific criteria:

  1. Pegged 1:1 to the U.S. dollar
  2. Redeemable on demand at a fixed 1:1 ratio
  3. Fully backed by high-quality, low-risk reserve assets, such as cash or Treasury bills, with reserves that always exceed the amount of stablecoins in circulation.

These stablecoins are designed to serve commercial purposes — such as payments, remittances, and value storage — not for investment or speculation.

Why Are They Not Considered Securities?

The SEC applied two well-established legal standards — the Reves test and the Howey test — to assess whether these stablecoins qualify as securities. The conclusions were as follows:

  • No investment intent: Buyers use stablecoins for transactions or storage, not to generate profit.
  • No profit sharing: Holders do not receive interest or yield.
  • Not marketed as investment assets: These stablecoins are promoted as "digital dollars," not financial instruments.
  • Strict reserve backing: Reserve assets are preserved and cannot be lent out, rehypothecated, or used to cover operating expenses.

Therefore, Covered Stablecoins do not meet the criteria to be classified as securities, and issuers are not required to register with the SEC.

Industry Impact

This statement marks a major step toward regulatory clarity for stablecoin issuers such as Circle (USDC) and PayPal (PYUSD). It paves the way for compliant stablecoins to operate in the United States without fear of legal action — provided they fully satisfy the SEC's conditions.

As regulators around the world continue to grapple with crypto policy, this move by the SEC signals a more nuanced and constructive approach toward the crypto industry.