SEC Exempts Dollar-Pegged Stablecoins From Securities Classification

The Securities and Exchange Commission (SEC) has made a significant shift in its approach to stablecoins, announcing that certain types will no longer be classified as securities. This decision means that these stablecoins will not require registration with the SEC, nor will they be subject to the agency's oversight or face potential legal actions. This move is a relief for many projects that have been navigating the complex regulatory landscape.

The SEC has introduced a new category called "Covered Stablecoins," which includes dollar-pegged stablecoins that maintain a 1:1 value with the U.S. dollar and are backed by highly liquid and safe assets. Examples of these include USDC and PYUSD, which are fully backed and easily redeemable. According to the SEC’s Division of Corporation Finance, these coins do not behave like investments and thus will not be regulated as securities. This classification provides more freedom and fewer legal hurdles for developers, offering a much-needed respite for companies that have been cautious about regulatory compliance.

Circle’s President welcomed the decision, stating that it validates projects that adhere to regulatory standards and back their tokens with real assets. However, the SEC’s guidance explicitly excludes algorithmic stablecoins, interest-bearing stablecoins, and asset-backed coins tied to commodities like gold or foreign currencies. These types of stablecoins remain in a regulatory gray area and could still be classified as securities, depending on their use or promotion. This uncertainty continues to pose challenges for investors and developers in these sectors.

One notable aspect of the SEC’s decision is that while "covered" stablecoins can earn interest on their reserves, they are not permitted to pass this interest on to users. This restriction means that users cannot earn passive income simply by holding these stablecoins under the current regulatory framework. The CEO of a major cryptocurrency exchange has expressed dissatisfaction with this aspect, advocating for Congress to update the rules to allow users to earn interest without triggering security laws. This reflects a broader tension between fostering innovation and maintaining regulatory control in the cryptocurrency industry.

In response to the SEC’s move, lawmakers are actively working on bipartisan bills in both the House and Senate to create a clearer and more crypto-friendly regulatory framework for stablecoins. As the 2025 election cycle approaches, cryptocurrency is becoming a prominent topic on Capitol Hill. Various lawmakers are pushing their own agendas, and the SEC’s upcoming crypto summit is expected to be a pivotal event in determining the future of crypto regulation.

This decision by the SEC represents a significant turning point for dollar-backed stablecoins, making their regulatory path smoother. However, for other types of stablecoins, the regulatory landscape remains unclear. The message from the SEC is clear: projects that follow the rules and back their coins with cash are likely to avoid stringent regulatory scrutiny. For those innovating outside these guidelines, the regulatory battle is far from over.