SEC Commissioner Criticizes Stablecoin Guidance Over Redemption Risks

SEC Commissioner Caroline Crenshaw has expressed significant concerns regarding the recent guidance issued by the Division of Corporation Finance at the US Securities and Exchange Commission (SEC) on stablecoins. The guidance, released on April 4, 2025, outlines the SEC staff’s current position on what it defines as “Covered Stablecoins.” These are stablecoins designed to maintain a stable value relative to the US Dollar (USD) on a one-for-one basis, be redeemable for USD on a one-for-one basis, and be backed by assets held in a reserve that are considered “low risk and readily liquid.”

Crenshaw’s dissenting statement highlights several critical issues with the guidance. She argues that the staff’s statement reflects a fundamental misunderstanding of the law and the realities of stablecoin operations. One of her primary concerns is the reliance on intermediaries for the redemption of stablecoins. Crenshaw notes that retail buyers typically purchase stablecoins through intermediaries rather than directly from the issuer, which accounts for over 90 percent of USD-stablecoins in circulation. This intermediary structure may not allow the holder of the stablecoin a direct privity of contract with the issuer, potentially posing a lack of recourse against the issuer if the intermediary is unable or unwilling to redeem the stablecoin.

Additionally, Crenshaw raises concerns about the collateralization of Covered Stablecoins by the reserve assets and the lack of visibility into whether there is insurance for the benefit of the holders should the issuer not redeem. She also points out that the guidance does not address protocols or platforms that make use of Covered Stablecoins to generate returns, such as certain stablecoins integrated in decentralized finance (DeFi) protocols. This leaves a significant gap in the regulatory framework, as it remains unclear what the SEC’s views are with respect to the minting or redemption of other digital assets backed by real-world assets (RWAs) and whether they represent securities requiring registration under the Securities Act.

The guidance also notes that Covered Stablecoins are marketed for use in commerce and not for investment purposes. However, Crenshaw’s concerns suggest that the current regulatory framework may not adequately address the risks associated with stablecoins, particularly those related to redemption and collateralization. She emphasizes the need for more comprehensive legislation to establish a legal framework for stablecoins used as a means of payment, including statutory requirements for federal (or state) licensing and oversight, transparency and one-for-one reserve standards, redemption and consumer protection requirements, and anti-money laundering (AML)/know-your-customer (KYC) compliance.

Crenshaw’s dissenting statement underscores the importance of addressing these concerns to ensure the stability and security of the stablecoin market. As Congress considers more comprehensive stablecoin legislation, her concerns highlight the need for a robust regulatory framework that can effectively mitigate the risks associated with stablecoins and protect consumers. The SEC’s guidance on Covered Stablecoins represents a meaningful step toward regulatory clarity, but it is clear that more work is needed to address the issues raised by Commissioner Crenshaw.