On April 4, 2025, the staff of the SEC’s Division of Corporation Finance (the “Staff”) issued a statement addressing the status of certain stablecoins under the U.S. securities laws.
The statement concludes that a narrow class of USD-backed, fully reserved, non-yield-bearing stablecoins (“Covered Stablecoins”) do not involve the offer or sale of securities. In other words, the SEC staff’s view is that issuing or redeeming these particular stablecoins does not require Securities Act registration, because such coins fail to meet the definitions of a security under both the Reves “family resemblance” test and the Howey test.
This marks one of the clearest SEC positions to date on crypto assets, confirming the Staff’s view that the offer and sale of Covered Stablecoins meeting the Staff’s articulated criteria do not involve the offer and sale of “securities” within the meaning of the Securities Act of 1933 or the Securities Exchange Act of 1934.
Criteria for “Covered Stablecoin” Status
According to the SEC staff, a stablecoin must satisfy strict conditions to fall into the “Covered Stablecoin” category and avoid being treated as a security:
- 1:1 USD Backing with Low-Risk Reserves: The stablecoin must be backed one-to-one by the U.S. dollar (USD) or equivalent safe assets at all times. Proceeds from sales must be held in a segregated reserve of high-quality, liquid assets (e.g., cash, bank deposits, U.S. Treasury bills, or registered money-market funds). These reserves must fully cover all outstanding stablecoins on a continuous basis. Importantly, the Staff explicitly notes that acceptable reserve assets do not include riskier instruments like precious metals or other crypto tokens. Reserves are not to be lent, commingled, or used for the issuer’s other business purposes; they exist solely to meet redemption demands.
- On-Demand Redemption at Par: Holders must be able to redeem the stablecoin on demand, at par ($1) per coin. The issuer (or its agents) should always stand ready to mint and redeem stablecoins in unlimited quantities at the fixed $1 price. This redemption mechanism (either directly for all holders, or via designated intermediaries for retail users) is crucial to maintaining the token’s price stability. It also enables arbitrage that keeps any market price fluctuations tightly anchored to $1. Any material restrictions on redemption – such as minimum withdrawal amounts or delayed payout windows – could undermine this criterion.
- No Expectation of Profit (Not an Investment): The stablecoin confers no rights to profit or income and is not marketed as an investment. Holders receive no interest, dividends, or other return from mere ownership of the token. They also have no ownership stake or governance role in the issuer’s business. In effect, buying a Covered Stablecoin is presented as akin to exchanging cash for a digital dollar, not an opportunity to profit from the efforts of a team or the growth of a business. The Staff emphasized that stablecoins designed purely as a medium of exchange or store of value, rather than a speculative investment, lack the “expectation of profit” needed to trigger the Howey test. (Any stablecoin offering holders a share of reserve earnings or other yield would fall outside this category, as discussed below.)
By meeting these conditions, a stablecoin resembles a cash-equivalent payment instrument rather than a security. The Staff’s analysis under Reves found that such tokens function like demand deposits or stored-value notes used in commerce, not like notes offered for investment. Likewise under Howey, purchasers are acting as consumers using a dollar substitute, not investors seeking profits from others’ entrepreneurial or managerial. These criteria set a high bar – only a subset of existing stablecoins clearly fit the definition of “Covered Stablecoins.”
Staff Guidance – Not a Rule or Safe Harbor
The April 4 statement represents staff-level guidance and is not an SEC Commission rule, regulation, or formal adjudication. As the statement itself cautions, it has “no legal force or effect” – it does not modify existing law or provide any immunity from it. In practical terms, this means issuers of Covered Stablecoins cannot rely on the statement as a legal defense in the way they could rely on an official rule or exemption. The Staff’s view is persuasive but not binding: if facts differ or a court disagrees with the staff’s analysis, a stablecoin could still be found to implicate the securities laws.
Importantly, the Staff’s statement is not a “safe harbor” that protects all stablecoins calling themselves fiat-backed. It applies only to Covered Stablecoins under the specific fact pattern described. If a stablecoin deviates from those facts (for example, holding a riskier mix of reserves, or restricting redemptions, or offering any profit incentive), the staff’s view could be that such a coin does involve a security offering. In short, the guidance provides a roadmap for structuring a stablecoin that the SEC staff would likely deem outside the securities regulatory scope – but it does not guarantee protection. Issuers should approach this as an informal compliance insight, not an operative law. The Commission itself may eventually weigh in through rulemaking or enforcement, and is the incoming Chairman and Commissioners are not legally bound by this Staff position, although presumably it was issued with the acquiescence and agreement of the majority of the Commission.
That said, the tone of the statement and its alignment with existing case law offer a measure of comfort to stablecoin issuers that follow the model. It signals a policy inclination at the SEC (at least under current leadership) to exclude true payment stablecoins from the securities bucket, reducing uncertainty for those projects. Stakeholders have appreciated this progress, while also recognizing its limits.
Commissioner Crenshaw’s Dissent
Commissioner Caroline Crenshaw cautioned that the Staff’s statement “reflects a fundamental misunderstanding of the law and the realities of stablecoin arrangements.” She expressed concern that the analysis understates risks associated with reserve asset quality, lack of enforceable redemption rights for retail holders, and the potential for systemic “run” scenarios. Crenshaw also questioned the Staff’s conclusion that purchasers have no expectation of profit, noting that many stablecoins trade on secondary markets and may be viewed as store-of-value instruments rather than true payment tools. Finally, she took issue with the process by which the Staff’s position was issued, emphasizing that a policy change of this magnitude warrants full Commission consideration and public engagement. Her dissent underscores the broader debate within the SEC about the appropriate regulatory perimeter for stablecoins and the balance between innovation and investor protection.
Legislative Proposals: The STABLE Act and GENIUS Act
Congress is actively considering legislation that could complement—or in some respects supersede—the Staff’s guidance by establishing a comprehensive regulatory framework for stablecoin issuers. The STABLE Act (Stablecoin Tethering and Bank Licensing Enforcement Act) would require all stablecoin issuers to be insured depository institutions subject to federal banking oversight. This aligns closely with the prudential concerns flagged by the Financial Stability Oversight Council (FSOC) and echoes many of the risks highlighted by Commissioner Crenshaw in her dissent. By contrast, the GENIUS Act (Guaranteed E-Money, Nonbank Issuers, and Uniform Standards Act) would authorize a federal licensing regime for nonbank issuers, subject to reserve, redemption, disclosure, and AML requirements. Whereas the STABLE Act represents a bank-centric approach, the GENIUS Act reflects the view that stablecoin innovation can occur safely outside the traditional banking system with tailored supervision. Taken together, these proposals illustrate a growing bipartisan consensus that stablecoins warrant purpose-built regulation—focusing on payment integrity and systemic risk—regardless of their classification under securities law.
Remaining Legal and Regulatory Uncertainties
The CorpFin guidance, while positive, leaves many regulatory questions unanswered. Stablecoin issuers and market participants should be aware of several key areas where additional clarity and oversight are still developing:
- Investment Company Act Considerations: The SEC statement addresses the Securities Act of 1933 and Exchange Act of 1934, but did not discuss the Investment Company Act of 1940. A stablecoin issuer pooling reserve assets could inadvertently fall within the definition of an “investment company” (e.g. an unregistered money market fund) if a large portion of those reserves are securities. Most fiat stablecoin issuers mitigate this risk by holding primarily cash and U.S. government securities, which are excluded from the 1940 Act’s calculations. Nonetheless, the question remains: Could a stablecoin be regulated like a fund? The staff statement implies that reserves should be conservatively managed (and even allows use of registered money market funds), but it doesn’t formally exempt issuers from investment company status.
- Until the SEC or Congress addresses this point, stablecoin sponsors must ensure compliance or find exceptions on the 40 Act front, to avoid another potential regulatory violation.
- Systemic Risk and Prudential Regulation: Even if not securities, large stablecoins raise banking and systemic stability concerns. Regulators have long warned that a loss of confidence in a major stablecoin could lead to a “run” on redemptions, with broader financial fallout. The President’s Working Group and Financial Stability Oversight Council (FSOC) have recommended that Congress enact a federal prudential regime for payment stablecoins, potentially requiring issuers to be insured depository institutions (banks) and empowering regulators to oversee reserves and interoperability. To date, no such law has passed, but activity is underway – as of this week, draft stablecoin legislation has advanced in both the House and Senate in bipartisan fashion. Additionally, FSOC could consider designating certain stablecoin activities as systemically important payment systems, which would invite Federal Reserve oversight.
- The SEC’s non-securities stance does not preclude other regulators from treating major stablecoin issuers as de facto banks or systemic entities. We anticipate continued developments on requirements like capital, liquidity, and supervisory frameworks to address the systemic risks of stablecoins operating at scale.
- AML and Sanctions Compliance Gaps: Stablecoins often function like digital cash, and that raises anti-money laundering (AML) and sanctions-enforcement challenges. The SEC staff statement did not cover AML obligations (as those fall under Treasury and FinCEN jurisdiction), but officials have flagged stablecoins as a vector for illicit finance if not properly policed. Currently, U.S.-based stablecoin issuers typically register as Money Services Businesses and implement AML/KYC programs. However, the rigor of compliance can vary, especially for offshore issuers and in decentralized contexts. There remain key gaps in oversight of stablecoin arrangements, according to the President’s Working Group. For example, unhosted wallet transfers of stablecoins and foreign issuers not subject to U.S. rules create avenues for evading sanctions or laundering funds. It would be reasonable to expect increased focus from FinCEN and global standard-setters (e.g. FATF) on closing these gaps – e.g., through travel rule enforcement, sanctions screening requirements, and possibly new licensing frameworks for wallet providers.
- The SEC’s guidance does not relieve any obligations under AML laws, and participants in stablecoin ecosystems must stay vigilant on compliance to avoid enforcement actions on this front.
- Other Regulators – CFTC and Beyond: Declaring certain stablecoins are not SEC-regulated securities effectively shifts the regulatory perimeter – but does not leave such assets unregulated. If a stablecoin is not a security, it may be considered a commodity, bringing it under the Commodity Futures Trading Commission (CFTC) oversight for anti-fraud and manipulation (and for any derivatives based on the stablecoin). Notably, the CFTC has already asserted jurisdiction in this area: in 2021 it fined Tether for misrepresentations about reserves, implicitly treating USDT as a commodity under the Commodity Exchange Act. CFTC leadership has stated that fiat-backed stablecoins like USDC and USDT are commodities in their view. Thus, we may see the CFTC more actively policing stablecoin disclosures and stability, especially if the SEC steps back. Additionally, bank regulators (OCC, Federal Reserve) could assert authority if stablecoins intertwine with the banking system. The Federal Reserve, for instance, might impose standards on member banks’ dealings with stablecoin issuers or even require that certain issuers obtain Fed approval or accounts in the future. Outside the U.S., other agencies and international bodies are also crafting rules – from treating stablecoins as e-money to setting global reserve standards.
- The regulatory landscape for stablecoins is far from settled. The SEC’s guidance is a piece of the puzzle, but a comprehensive framework likely will involve legislation and multi-agency coordination (SEC, CFTC, Fed, Treasury/FinCEN, state regulators, and international counterparts).
Conclusion
The SEC staff’s April 2025 stablecoin statement represents a significant step forward in recognizing that not all crypto assets are created equal. By affirming that a properly designed USD-backed, fully reserved stablecoin used for payments is not a security, the SEC staff has provided a measure of certainty that many in the fintech and crypto industry have long sought. This nuanced approach – essentially carving out payment stablecoins from the securities bucket – is a welcome development for companies aiming to build compliant digital dollar products. It acknowledges the reality that such stablecoins serve a utility function akin to money, with no investment intent on the part of users.
However, this progress comes with important caveats. The guidance is limited in scope and not yet backed by formal rulemaking. There remain open questions and a pressing need for broader regulatory clarity. Issues like the status of other stablecoin types, the applicability of other laws (commodities, banking, funds), and the handling of systemic and illicit finance risks are all on the table. Clients involved in stablecoin issuance or usage should therefore approach the current SEC guidance with measured optimism: it provides a helpful compliance blueprint and positive indication of regulatory thinking but does not resolve all risk. Prudent steps include ensuring documenting how a stablecoin product strictly meets the outlined criteria if aiming to rely on this guidance, staying abreast of legislative developments on stablecoins, continuing to monitor for cross-agency developments, and engaging with other regulators as needed.
This post comes to us from A&O Shearman. It is based on the firm’s memorandum, “SEC staff takes a position on the security status of USD-backed stablecoins,” dated April 8, 2025, available here.