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The U.S. Securities and Exchange Commission (SEC) announced on April 4 that certain stablecoins will not be treated as securities, giving much-needed clarity to the cryptocurrency market.
This new rule applies only to “Covered Stablecoins” that are pegged 1:1 to the U.S. dollar, backed by safe assets, and don’t pay interest to holders.
“The SEC just drew a clear line: stablecoins backed 1-for-1 with high-quality liquid assets — like USDC — are NOT securities,” said Heath Tarbert, President of Circle. “This certainty does not extend to other digital assets just because they call themselves ‘stablecoins.’”
Stablecoins are digital currencies designed to keep a steady value, unlike Bitcoin, which can swing wildly in price. Most are tied to the U.S. dollar, with one coin equaling one dollar. Companies back these coins with real assets like cash or government bonds.
The SEC notice excluded algorithmic stablecoins, which use computer programs to maintain their value instead of actual asset reserves. This leaves projects like TerraUSD, which crashed in 2022 and cost investors $40 billion, without clear rules.
Coinbase CEO Brian Armstrong welcomed the clarity but criticized the ban on interest-bearing stablecoins.
“Many Americans they’re only earning about 0.14% in their savings account, but in Treasurys, you can earn 4.5% right now. That seems unfair to me,” Armstrong told CNBC. He explained that paying interest would require securities registration under current rules.
The guidance comes as Congress works on two competing stablecoin bills. The House Financial Services Committee recently passed the STABLE Act, while the Senate Banking Committee approved the GENIUS Act in March. Both bills match the SEC’s framework but don’t allow for interest-bearing stablecoins.
Not everyone at the SEC agrees with the new guidelines. Commissioner Caroline Crenshaw claimed they contain “legal and factual errors” and downplay risks. She noted that 90% of dollar-pegged stablecoins are traded through crypto platforms, not obtained directly from issuers.
Tether, the biggest stablecoin with over $145 billion in circulation, might not qualify under the new rules. Its reserves include cryptocurrencies and precious metals, which the SEC guidelines specifically don’t allow.
Experts predict the new clarity will speed up stablecoin adoption. Some think as many as 1,000 new stablecoins could launch within a year, with traditional banks like Bank of America getting ready to enter the market.
The stablecoin sector has grown about 47% over the past year, with more people using them for payments and storing value beyond just crypto trading.
