SEC Introduces Covered Stablecoins Category, Exempting USDC and PYUSD from Securities Laws

The U.S. Securities and Exchange Commission (SEC) has introduced a new category called “Covered Stablecoins,” which provides regulatory clarity for certain dollar-backed digital currencies. This category excludes these stablecoins from securities laws, benefiting coins like USDC and PayPal’s new PYUSD. The new rules stipulate that only stablecoins with full asset backing and a fixed value qualify for this exemption. This development is significant as it provides a stronger regulatory foundation for these stablecoins, moving them out of the gray area of unregulated digital assets.

The SEC’s Division of Corporation Finance has clarified that Covered Stablecoins serve as reliable stores of value and exchange currencies, lacking the investment characteristics of profit or financial returns typical of other digital assets. This exemption from strict securities oversight is due to their one-to-one backing with U.S. dollars and issuance by safe and liquid assets. The ruling specifically excludes algorithmic stablecoins and those capable of providing interest, ensuring that only stablecoins with a value equal to or exceeding their circulating supply qualify. The stability of these coins is linked to the U.S. dollar, making them dependable exchange instruments.

The SEC’s decision is based on the Reves and Howey tests, which categorize Covered Stablecoins as commercial tools rather than investment vehicles. The agency’s analysis indicates that users primarily employ these assets for practical purposes, such as regular purchases, rather than seeking financial gains. Unlike other cryptocurrencies like Bitcoin, which experience significant value fluctuations, these stablecoins maintain a fixed price value against the U.S. dollar.

Industry leaders have welcomed the SEC’s action, with Circle President Heath Tarbert praising the move as it aligns with his company’s USDC, which is fully backed by investors’ properties. Bipartisan legislation aimed at regulating stablecoins is progressing through both the House and the Senate, reflecting the U.S. government’s increasing interest in establishing standards for digital assets. This development supports the broader effort to create a regulatory framework for the cryptocurrency industry.

As the SEC prepares for a key crypto trading summit, the focus will be on trading regulations. The agency does not currently prioritize yield-bearing tokens, indicating that stablecoins remain a high agenda item. Meanwhile, political pressure is mounting for more thorough and rapid regulatory oversight in response to the evolving crypto landscape. The recent SEC clarification marks an essential milestone for dollar-backed stablecoins, providing stability for users and issuers. The cryptocurrency industry is closely monitoring the ongoing development of stablecoin legislation by Members of Congress.