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SEC Issues Covered Stablecoin Statement, Risks Remain
Regulation | April 10, 2025
Image: Freepik
SEC Says Some Fully Backed, Payment-Only 'Covered Stablecoins' Aren’t Securities
On April 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a statement that clarified some U.S. dollar-backed stablecoins may not be considered securities. While the statement was welcomed and creates some breathing room for crypto and fintech projects, the announcement ignited an internal debate at the SEC and many are wondering what's next.
Covered Stablecoins
The SEC said certain U.S. dollar-backed stablecoins (referred to as 'Covered Stablecoins') are not considered securities if they have all of the following characteristics:
- Stablecoin must maintain a 1:1 fixed value equal to the U.S. dollar, without fluctuations
- Each stablecoin must be fully backed by an equivalent amount of high quality assets such as U.S. Treasury bills, cash, or cash equivalents that can be redeemed on demand. These assets must be held in custody and verified regularly
- No expectation of profit - cannot be promoted as an investment or marketed in a way that leads buyers to expect profit from simply holding the token
See: U.S. Senate Moves to Regulate Stablecoins
- No voting rights, control over the issuer, or shares in any profit or management decisions (no governance)
- Stablecoin must be designed and used as a method of payment only (no speculation of yield)
- Issuers must make public, regular, and accurate disclosures about the reserves backing the stablecoin, how redemptions work, and any related risks
- Algorithmic stablecoins or stablecoins that offer yield (interest, rewards, or staking returns) are excluded
Basically, a 'covered stablecoin' must behave like digital cash, and used for payment transactions, fully backed, and free of any rights, ownership or expectation of profit. If the token acts like cash (and not a stock) then it likely isn't a security. This offers a clearer path for some stablecoins like USDC or USDP.
Internal SEC Debate
Not everyone at the SEC agrees with the above perspective though. On the same day, Commissioner Caroline Crenshaw published a statement titled "'Stablecoins' or Risky Business" warning that most people acquire stablecoins through intermediaries like a crypto exchange, and in many cases they don’t have the legal right to redeem them directly. This creates a risk for retail purchasers who may think that these coins are safer than the really are. Crenshaw highlighted that these tokens can still break their dollar peg or have liquidity issues, especially in a crisis.
Caroline Crenshaw, SEC Commissioner argued that the statement "downplays the risks associated with stablecoins," saying that "over 90% of these stablecoins are distributed through intermediaries, leaving retail holders without direct redemption rights and exposing them to potential market volatility."
See: Stablecoins Are Growing Faster Than You Think
While the SECs statement on stablecoins helps clarity one area, it leaves many other types of stablecoins that do not meet the 'covered stablecoin' requirements in a legal gray zone. And just because the SEC says it won’t pursue enforcement doesn’t mean other agencies won’t step in. Additionally, there are ongoing discussions in Congress for the STABLE Act and the GENIUS Act that could result in new federal laws that override or change the current stablecoin guidance.
Outlook
It's positive that the SEC has given a green light to a limited type of payment-orientated stablecoins but the final stablecoin rules aren't settled, and there are still many big unknowns up in the air. It's still a work in progress.
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