The United States Securities and Exchange Commission has clarified its stance on dollar-backed stable cryptocurrencies, stating that “covered” stablecoins are not securities. This move represents another step toward a clear crypto regulatory landscape in the US.
Covered Stablecoins Not Securities — What About Algorithmic Stablecoins?
On Friday, April 4, the SEC took a formal position on dollar-backed stablecoins. The agency declared in an official statement that covered stablecoins, such as Tether’s USDT and Circle’s USDC, are not securities that fall under their regulatory purview.
According to the US regulator, covered stablecoins refer to crypto tokens designed and marketed as a means of payment, transmitting money, or storing value. These stablecoins maintain a value relative to the US dollar and are backed by the US dollar and/or other assets that are considered low-risk and readily liquid to allow a Covered Stablecoin issuer to honor redemptions on demand.
The commission said on Friday:
It is the Division’s view that the offer and sale of Covered Stablecoins, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”).
As such, firms involved in the process of “minting” (or creating) and redeeming these covered stablecoins are not required to register their transactions with the commission. It is worth noting that the regulator seemed to exclude algorithmic stablecoins, which use programs to increase or decrease the supply of stablecoins in response to demand, from this clarifying statement.
This lack of regulatory certainty on algorithmic stablecoins is a little surprising considering the catastrophic collapse of Terra’s stablecoin (UST) in 2022. The fall of the Terra Luna ecosystem saw the loss of almost $45 billion from the market in a single week.
US SEC Stance Aligns With Proposed Senate Legislation
The SEC’s clarifying statement about covered stablecoins appears to be consistent with regulations slated in the GENIUS stablecoin bill and the Stable Act of 2025 being proposed in the US Senate.
On February 4, US Senator Bill Hagerty introduced a bill to create a regulatory framework for stablecoins that would allow tokens, such as USDT and USDC, to fall under Federal Reserve rules.
This legislative bill aims to protect the US dollar’s status as the global reserve currency, as the largest stablecoin issuers back their tokens with US dollar deposits held in regulated financial institutions and short-term US Treasury Bills.
As of this writing, Tether’s USDT ranks as the largest stablecoin and the third-largest cryptocurrency, with a market capitalization of over $144 billion.
The market capitalization of Tether's USDT on the daily timeframe | Source: USDT chart on TradingView
