SEC published its view on covered stablecoins

Covered stablecoins are crypto assets pegged 1:1 to USD, redeemable at any time, with low-risk, liquid reserves. The Division notes that they are not used for investments, but for payment, money transfers, and storing value. It is the Division’s view that covered stablecoins are not securities under Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Securities Exchange Act of 1934. The issuer stands ready to mint and redeem the stablecoins at any time and in any amount, maintaining price stability through this mechanism.

The SEC’s view on covered stablecoins

According to the Division, covered stablecoins do not provide holders with interest, profits, governance rights, or any financial gain related to the issuer’s performance. From a legal perspective, the Division evaluated whether the stablecoins qualify as securities by citing two sources, the Reves and Howey tests.

Under the Reves test, while stablecoins could appear similar to notes or debt instruments, the context suggests otherwise. Buyers are motivated by utility, not profit. The coins are not marketed or traded as speculative investments, the public sees them as a form of digital cash, and the risk is mitigated through the backing reserve, which always supports full redemption. Federal courts apply the Reves test holistically, as a balancing test, where no single factor is to be considered on its own to determine whether the note is a security or non-security.

The Howey test, used to analyse arrangements or instruments not explicitly listed in the law, also supports the view that these stablecoins are not securities. There is no investment of money with a reasonable expectation of profits derived from the efforts of others. Rather, buyers are motivated to use or consume Covered Stablecoins as digital dollars in the same way one would use USD. Accordingly, it is the Division’s view that Covered Stablecoins are not offered or sold as investment contracts.

The Division concludes that the offer and sale of covered stablecoins do not require registration with the SEC and are not subject to federal securities laws.