SEC Clarifies Crypto Asset Regulations, Exempts Covered Stablecoins

The U.S. Securities and Exchange Commission (SEC) has issued comprehensive guidance on the application of federal securities laws to crypto asset-related offerings and disclosures. This move is part of a broader effort to provide clarity to the crypto industry, which has long grappled with regulatory uncertainty. The guidance emphasizes the need for transparency in operations, risks, and technical aspects of crypto assets, urging companies to adhere to stringent disclosure requirements.

The SEC's Division of Corporation Finance has released a statement that outlines how federal securities laws apply to certain offerings and registrations in the crypto asset markets. This statement does not address all aspects of crypto regulation but focuses on providing a framework for compliance. The guidance aims to assist with the registration and disclosure requirements for securities related to networks, applications, and crypto assets. It underscores the importance of detailed disclosures in offerings and registrations, ensuring that investors are fully informed about the risks and technical details of the assets they are investing in.

The SEC's new guidance also includes a nonbinding statement that urges detailed disclosures for crypto token offerings. This statement is part of the SEC's ongoing effort to clarify the application of federal securities laws to crypto assets, ahead of a new crypto task force's work. The guidance details expectations for crypto asset offerings, focusing on transparency in operations, risks, and technical aspects. It advises companies to provide comprehensive information about their operations, the risks associated with their crypto assets, and the technical details of their platforms.

On April 4, 2025, the SEC’s Division of Corporation Finance issued a staff statement that certain USD-pegged stablecoins do not qualify as securities under federal law. This announcement defines a narrow category of “Covered Stablecoins” exempt from registration requirements. Covered Stablecoins are crypto assets pegged one-to-one with the U.S. dollar, fully backed by a reserve of USD or low-risk, liquid assets, and redeemable on demand on a one-for-one basis. These stablecoins must not offer yield, interest, or ownership or governance rights and must be marketed solely for payments, money transmission, or value storage—not investment. The Division concludes that such assets, under these conditions, fall outside the definitions of a “security” in Section 2(a)(1) of the Securities Act of 1933 and Section 3(a)(10) of the Securities Exchange Act of 1934. As a result, minting and redemption transactions involving Covered Stablecoins need not be registered with the SEC.

The statement emphasizes the role of the reserve, which must be maintained at or above the value of outstanding stablecoins and segregated from other issuer assets, as a stabilizing mechanism. Issuers must stand ready to mint or redeem unlimited quantities of stablecoins at a fixed one-to-one ratio with USD, a structure the Division claims fosters price stability via short-lived arbitrage opportunities in the secondary market. This guidance applies only to Covered Stablecoins and does not include algorithmic, yield-bearing, or non-USD-pegged variants.

Commissioner Caroline A. Crenshaw issued a dissent from the Division’s position, arguing that it mischaracterizes the USD-stablecoin market and understates its risks. Commissioner Crenshaw highlights that over 90% of these USD-stablecoins reach retail holders through intermediaries rather than directly from issuers. These holders lack contractual redemption rights against issuers, relying instead on intermediaries who are not obligated to redeem at par, exposing them to market price fluctuations. Commissioner Crenshaw also criticizes the Division’s reliance on issuer reserves as a risk mitigator, noting that retail holders have no claim to these assets. She questions reserve sufficiency, pointing out vulnerability to redemption runs and the unreliability of issuer-published “proof of reserves” reports, which lack regulatory oversight and auditing standards. Labeling the Division’s analysis “distorted,” she warns that calling Covered Stablecoins “digital dollars” misleads investors about their unregulated, uninsured nature.

The Division and Commissioner Crenshaw anchor their arguments in two Supreme Court frameworks: Reves v. Ernst & Young, 494 U.S. 56 (1990), and SEC v. W.J. Howey Co., 328 U.S. 293 (1946). The Division applies Reves’s four-factor test to rebut the presumption that Covered Stablecoins, as potential notes, are securities. Motivations of Seller and Buyer: Issuers use proceeds from sales to fund reserves, not speculative ventures, while buyers seek utility, not profit, given the absence of yield. Plan of Distribution of the Instrument: Broad availability is tempered by a mint-redeem structure designed to deter arbitrage opportunities and speculation. Reasonable Expectations of the Investing Public: Covered Stablecoins are marketed as transfers and stores of value, not investments. Risk-Reducing Features: A fully backed, segregated reserve ensures redemption, reducing the need for securities law oversight. Commissioner Crenshaw, in her dissent, targets the risk-reduction factor, asserting that reserves do not collateralize stablecoins for retail holders, who lack direct redemption rights. She compares them to the uncollateralized, uninsured notes in Reves, arguing that intermediary reliance and reserve opacity undermine the Division’s conclusion.

Under the Howey test, a financial instrument is an “investment contract,” a type of security, if there is an investment of money in a common enterprise with a reasonable expectation of profits from the efforts of others. The Division contends that Covered Stablecoins do not satisfy Howey as they are not marketed as investments or as potential profit-makers, instead likening Covered Stablecoins to “digital dollars.” Crenshaw’s dissent does not directly address Howey but implicitly challenges the stability narrative, suggesting that intermediary-driven volatility could affect the analysis.

The Division’s statement offers relief for issuers of Covered Stablecoins by exempting their minting and redemption from SEC registration. However, the Division’s strict criteria may exclude dominant stablecoins. Intermediaries facilitating secondary market trades may also benefit, though Crenshaw’s focus on their role could hint at potential future scrutiny.