Comprehensive Analysis of SEC’s Position on Dollar-Backed Stablecoins
The United States Securities and Exchange Commission (SEC) has recently provided a clear directive regarding dollar-backed stable cryptocurrencies, confirming that these “covered” stablecoins do not classify as securities. This announcement marks a significant advancement towards establishing a transparent regulatory environment for cryptocurrency in the US.
Understanding the SEC’s Clarification on Covered Stablecoins
On April 4, the SEC officially asserted its viewpoint on dollar-backed stablecoins. In a formal announcement, the agency clarified that covered stablecoins, such as Tether’s USDT and Circle’s USDC, are exempt from being classified as securities under its jurisdiction.
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According to the SEC, covered stablecoins are defined as cryptocurrencies specifically designed and promoted for purposes such as payment processing, money transmission, or value storage. These stablecoins maintain their value closely tied to the US dollar and are backed by low-risk, highly liquid assets, enabling issuers to fulfill redemption requests promptly.
The SEC’s Formal Statement on Covered Stablecoins
The SEC elucidated that, under the described conditions, the issuance and trading of covered stablecoins do not involve securities transactions as per the Securities Act of 1933 and the Securities Exchange Act of 1934. Consequently, entities engaged in the creation and redemption of these stablecoins are not obligated to register their transactions with the commission.
Algorithmic Stablecoins: The Unresolved Regulatory Landscape
Interestingly, the SEC’s recent statement did not explicitly mention algorithmic stablecoins, which adjust their supply based on market demand. This omission is notable given the dramatic collapse of Terra’s algorithmic stablecoin (UST) in 2022, which resulted in a staggering $45 billion market loss within a week.
Alignment of SEC’s Stance with Proposed Legislative Measures
The SEC’s position on covered stablecoins aligns with forthcoming regulatory frameworks, such as the GENIUS Stablecoin Bill and the Stable Act of 2025, currently under consideration in the US Senate.
Senate Initiatives to Regulate Stablecoins
On February 4, US Senator Bill Hagerty proposed legislation to establish a regulatory framework for stablecoins. This framework aims to ensure that tokens like USDT and USDC are governed by Federal Reserve guidelines, thereby safeguarding the US dollar’s position as the global reserve currency. The largest issuers of stablecoins back their tokens with US dollar reserves held in regulated financial institutions and short-term US Treasury Bills.
At present, Tether’s USDT stands as the leading stablecoin, ranking third among all cryptocurrencies, with a market capitalization exceeding $144 billion.
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