SEC clarifies stance on “Covered Stablecoins,” excludes them from securities oversight
The U.S. Securities and Exchange Commission (SEC) has issued a new statement offering regulatory clarity on the treatment of stablecoins, narrowing its focus to a subset it now defines as “Covered Stablecoins.”
- This move comes from the Division of Corporation Finance, which emphasized its goal of aligning guidance with federal securities laws as they apply to crypto assets.
- The clarification marks a significant step toward outlining how specific stablecoin types fit into the existing legal framework for financial instruments.
Defining “Covered Stablecoins” and their USD backing
According to the SEC, “Covered Stablecoins” are stablecoins that maintain a 1:1 value peg with the U.S. dollar and offer full redeemability for USD on the same basis.
- These tokens are backed by low-risk, liquid reserves, with assets valued at or above the total circulating supply of the stablecoin.
- This ensures that each token is fully collateralized, eliminating the risk of shortfalls in redemption scenarios.
Importantly, this definition excludes other stablecoin types.
- The SEC’s statement does not apply to algorithmic stablecoins or those offering yield, nor does it cover tokens pegged to non-USD assets.
- This separation reinforces a distinction between conservative reserve-backed stablecoins and higher-risk models that might invite securities scrutiny.
SEC confirms Covered Stablecoins are not securities
A central point in the SEC’s guidance is that Covered Stablecoins are not considered securities, and therefore fall outside its jurisdiction under the Securities Act of 1933.
- The SEC stated, “the offer and sale of Covered Stablecoins, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities.”
- This clarification significantly reduces the compliance burden for projects issuing compliant stablecoins backed by cash-equivalent reserves.
Regulatory relief for minting and redemption
The new stance brings welcome relief for issuers and intermediaries, particularly around the process of minting and redeeming Covered Stablecoins.
- The agency emphasized that such transactions do not require SEC registration, nor do they need to fall under any exemptions from registration.
- The reasoning is rooted in the absence of investment intent, since buyers do not expect returns, and these stablecoins are not marketed for speculative or profit-driven purposes.
Implications for the stablecoin landscape
The two largest stablecoins, Tether (USDT) and USD Coin (USDC), fall within the scope of this description, marking a significant development in their regulatory treatment.
- This decision may prompt further innovation in the regulated stablecoin market, encouraging issuers to design tokens that fit the “Covered” criteria.
- At the same time, it places algorithmic and interest-bearing stablecoins under greater scrutiny, as these remain outside the safe harbor.
The SEC’s statement sets a clearer regulatory boundary, offering much-needed guidance for issuers, investors, and exchanges as the stablecoin ecosystem matures.
