On April 4, 2025, the SEC’s Division of Corporation Finance issued a statement in an effort to provide greater clarity to stablecoins under the U.S. securities laws.
The statement concludes that stable coins that are US Dollar-backed, fully reserved, and non-yield-meet do not involve the offer or sale of securities. Therefore these “Covered Stablecoins” do not require Securities Act registration. The Division of Corporation Finance comes to the conclusion that Covered Stablecoins fail to meet the definitions of a security under both the Reves “family resemblance” test and the Howey test.
I think this is fairly straightforward and just shows the SEC’s new love of crypto. For securities wonks, the statement is a great view of the SEC’s view of the Reves test and the Howey test. The Howey test is especially easy and great for the sponsors. Holders of Covered Stablecoins get no interest and have no expectation of earning interest. They just get back the money they put in.
The problem is once one of these Covered Stablecoins blows up and leaves the holders with empty digital wallets. I suppose the SEC would just claim that the particular coin did not meet the definition of “Covered Stablecoin” because its reserve was inadequate.
The SEC has a model of regulation for this. It would be easy enough to translate over the regulatory framework for money-market funds and subject the Covered Stablecoins to true audits and regulatory scrutiny.
These are big markets. Tether has $145 billion. USD Coin is $59 billion. It’s a great business model for the stablecoin sponsors. They get to keep all of income from the underlying reserves. There is risk in them blowing up. Make them earn the “Covered Stablecoin” designation by submitting Reg S-X level audits showing proper reserves and liquidity.
Sources:
- Statement on Stablecoins, SEC Division of Corporation Finance April 4, 2025
- A&O Shearman Discusses SEC Staff Position on USD-Backed Stablecoins by F. Dario de Martino, Susan Gault-Brown, C. Wallace DeWitt and Bill Satchell