The Staff noted that a stablecoin generally is not subject to SEC jurisdiction if it is not an investment and used solely for commercial activity.
On April 4, 2025, the SEC’s Division of Corporation Finance (the Staff) published a Statement on Stablecoins clarifying that in the Staff’s view the offer and sale of certain dollar-backed stablecoins does not involve an offer and sale of securities requiring registration under the US federal securities laws (the Stablecoin Statement).
The Stablecoin Statement follows similar recent statements of the Staff’s views on meme coins (for more information, see this Latham blog post) and certain proof-of-work mining activities (for more information, see this Latham blog post). It represents the latest in the SEC’s efforts to clarify how the US federal securities laws apply to digital assets following President Trump’s executive order on digital assets (for more information, see this Latham blog post) and the establishment of the SEC’s Crypto Task Force (for more information, see this Latham blog post).
The Staff’s View on the Offer and Sale of Covered Stablecoins
The Stablecoin Statement specifically addresses stablecoins that are designed to maintain a stable value relative to the US dollar (USD) on a one-for-one basis, can be redeemed for USD on a one-for-one basis, and are backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation (Covered Stablecoins). With respect to such Covered Stablecoins only, the Stablecoin Statement sets out the Staff’s view that the offer and sale of such Covered Stablecoins does not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Securities Exchange Act of 1934.
Moreover, the Stablecoin Statement makes clear that the Staff was not expressing any view regarding the application of the US federal securities laws to:
- stablecoins intended to track the value of reference assets other than USD, such as non-USD fiat currencies, commodities, or other cryptoassets;
- stablecoins with alternative stability mechanisms like algorithmic stablecoins;
- stablecoins that are intended to track the value of USD but that can be redeemed for assets other than USD; or
- yield-bearing stablecoins, including stablecoins that distribute rewards in the form of regular payments or rewards and those in the form of rebasing stablecoins.
Characteristics of Covered Stablecoins
As envisioned by the Staff, Covered Stablecoins are issued by an issuer who stands ready to mint and redeem the stablecoin for USD on a one-for-one basis. Covered Stablecoins may be offered and sold by the issuer directly or by designated intermediaries. In some cases, a holder of the Covered Stablecoin may be eligible to mint or redeem the stablecoin directly with the issuer. In other cases, only certain designated intermediaries are eligible to mint and redeem directly with the issuer and other holders can only purchase and sell the Covered Stablecoin through secondary market transactions (including with designated intermediaries). The Stablecoin Statement recognizes that Covered Stablecoins may trade at secondary market prices that fluctuate from the one-for-one redemption price. However, it contemplates that arbitrage opportunities between such secondary market prices and the ability to directly mint and redeem with the issuer will serve to maintain price stability.
The Staff devoted specific attention to the reserves and marketing of Covered Stablecoins, as follows:
Reserve Characteristics
As the Staff described, the reserve backing the Covered Stablecoins that the Stablecoin Statement addresses exhibit the following characteristics:
- The reserve reflects assets acquired using the proceeds of sales of the Covered Stablecoin and held in a pooled account.
- The assets held in the reserve consist of enough USD or other low-risk and readily liquid assets to back the amount of outstanding Covered Stablecoins, on at least a one-for-one basis.
- The reserve may be used only for paying redemptions and must not be used for the issuer’s operational or business purposes.
- The reserves should not (i) be commingled with the assets of the issuer or any third party; (ii) be lent, pledged, or rehypothecated; or (iii) be used to engage in trading, speculation, or investment strategies.
- The reserves should be held in a manner designed to shield them from claims of third parties.
The Stablecoin Statement lists examples of reserves such as cash equivalents, demand deposits, US Treasury securities, and/or money market funds. However, unlike the legislative stablecoin bills in both houses of Congress (for more information, see this Latham blog post), the Stablecoin Statement does not prescribe particular reserves, other than to note that Covered Stablecoins do not include those backed by precious metals or other cryptoassets.
The Stablecoin Statement contemplates that an issuer may permissibly earn interest on the assets held in the reserve. However, the issuer cannot distribute such earnings to its stablecoin holders. As noted above, yield-bearing stablecoins are not covered by the Stablecoin Statement.
The Staff also noted that certain stablecoin issuers have published “proof of reserves” as a verification method to demonstrate the sufficiency of their reserves.
Marketing Indicia
The Stablecoin Statement makes clear that the Staff contemplates Covered Stablecoins must be marketed solely for use in commerce, as a means of making payments, transmitting money, and/or storing value, and not as investments. The Staff also identified certain characteristics and indicia of Covered Stablecoins that are not offered or sold as securities. These include statements that the Covered Stablecoin:
- is designed to have a stable value relative or corresponding to USD;
- does not entitle the holder to (i) the right to receive any interest, profit, or other returns; (ii) an ownership interest in the issuer or any other third party; or (iii) any governance rights with respect to the asset or issuer; or
- does not provide the holder with any financial benefit or loss based on the financial performance of the issuer or any other third party.
The Staff’s Security Status Analysis
The Stablecoin Statement uses the analysis in Reves v. Ernst & Young for identifying a “note” that is a security as the principal test for determining the application of the US federal securities laws to stablecoins. Indeed, the Staff observed that Covered Stablecoins may be viewed as a “debt” of the issuer because of the issuer’s obligation to honor redemption requests. With that said, the Stablecoin Statement also addresses Covered Stablecoins under the Supreme Court’s test for an “investment contract” in SEC v. W.J. Howey in the event a Covered Stablecoin is not viewed as a note or other debt instrument.
In each case, it is important to underscore the limitations of the Stablecoin Statement. As the Staff noted in a footnote, the Stablecoin Statement is not dispositive of whether any particular stablecoin is offered and sold as a security, the analysis of which is dependent on the specific facts and circumstances of such stablecoin. Moreover, the Stablecoin Statement reflects the views of the Division of Corporation Finance only and does not have the force of law binding on the SEC or any private litigants.
Reves Analysis
In terms of the individual factors under the Reves “family resemblance” test for identifying notes that are not securities:
- Motivations of Buyers and Sellers. In the Staff’s view, the motivations of buyers of Covered Stablecoins is for their attendant use in commercial transactions or as a stablecoin store of value and not for an expected return. On the other hand, although the issuer may use the earnings on the reserve to support its business, the Staff notes that Covered Stablecoins are typically offered as stored value or prepaid access products in compliance with state money transmission laws, and thus are commercial products rather than investment products.
- Plan of Distribution. The Staff acknowledged that Covered Stablecoins are “offered and sold to a broad segment of the public,” but emphasized that in the Staff’s view the price stability of Covered Stablecoins ensures any secondary market trading is not for speculation or investment.
- Reasonable Expectations of the Investing Public. Emphasizing the marketing characteristics discussed above, the Staff indicated that in its view a reasonable buyer would not expect Covered Stablecoins to be investments.
- Risk-Reducing Factors. The Staff’s views the existence of a reserve designed to allow the issuer to fully satisfy redemption obligations on demand as a significant risk reducing factor. Notably, the Staff observed in a footnote that sufficient risk-reducing factors are more likely when reserve funds are held in a bankruptcy-remote account or vehicle and insulated from claims of the issuer’s creditors.
Howey Analysis
Giving relatively short treatment to the analysis of Covered Stablecoins under the Howey test, the Staff expressed the view that buyers do not purchase Covered Stablecoins with a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others because these instruments are not marketed as investments or with any emphasis on the potential for profit. Instead, in the Staff’s view, buyers of Covered Stablecoins use them as “digital dollars” in the same way as using USD.
Commissioner Crenshaw Again Sharply Disagrees
As with the recent Staff statements on meme coins and proof-of-work mining activities, SEC Commissioner Caroline Crenshaw forcefully criticized the Stablecoin Statement as embodying factual and legal errors and drastically understating the risks associated with stablecoins. Notable aspects of her criticisms include the following:
- Access to Direct Redemption. Commissioner Crenshaw expressed particular concerns that in many circumstances stablecoin holders (especially retail purchasers) will not have direct access to or recourse against the issuer. Instead, such holders are dependent on intermediaries to redeem or the ability to sell their stablecoins in the secondary market. Without access to direct redemption, stablecoin holders are exposed to secondary market prices (rather than one-for-one redemption) and generally would not have a claim in a bankruptcy proceeding if the issuer becomes insolvent.
- Assurance Value of Issuer Reserve. Commissioner Crenshaw was also critical of the significance the Staff ascribed to the reserve as a risk-reducing factor, including the fact that “proof of reserve” reports are unregulated and not subject to public accounting standards. Commissioner Crenshaw also noted that the fact that reserve assets may appear to be of sufficient value to meet redemption requests does not indicate financial health and solvency without information about the issuer’s liabilities.
Conclusion
Despite its limitations, the Stablecoin Statement continues the efforts of US federal financial market regulators and legislators under the new administration to foster a more accommodating regulatory environment for stablecoins and cryptocurrencies (see, for example, this Latham blog post and this post). The Stablecoin Statement comes at the same time as legislative proposals continue to move through Congress and that would more firmly cement new stablecoin regulation into law and respect enforcement and supervisory authorities. Moreover, while many practitioners have long held the view that stablecoins of the type cited in the statement should not be deemed securities, the Statement provides welcome clarity, and in combination with the meme coin and proof-of-work statements, serves to narrow the scope of the SEC’s presumptive enforcement authority to some degree. The demonstrated interest of federal policymakers in implementing a framework for stablecoin governance and to dial back the specter of regulation by enforcement is likely to continue, and the resulting increase in certainty for the US domestic crypto industry is to be welcomed.
