On April 5th, the U.S. SEC’s Division of Corporation Finance released new regulations for stablecoins.
The SEC has created a new term - regulated collateralized stablecoin - to describe a stablecoin that “maintains a stable value relative to the US dollar, can be redeemed at a 1:1 ratio for US dollars (i.e., 1 stablecoin for 1 US dollar), is backed by reserve assets, and is considered low risk and highly liquid, with its US dollar value reaching or exceeding the redemption value of circulating stablecoins.” That is, 1 stablecoin is exchanged for 1 US dollar, and is supported by reserve assets that are deemed low risk and highly liquid, with their US dollar value reaching or exceeding the redemption value of circulating stablecoins.
The agency stated that regulated guaranteed stablecoins are not offered or sold as investment contracts and therefore fall outside the SEC’s regulatory scope.
Some believe that the United States’ actions are aimed at further consolidating the dominance of the dollar as the global reserve currency in the “digital economy” sector, placing the dollar in a leading position in future digital economy competition.
In addition, this statement does not include algorithmic stablecoins, interest-bearing stablecoins, or stablecoins that track the value of assets other than the US dollar.
The full text of the new regulations is as follows:
Statement on stablecoins
Corporate Finance Department
April 4, 2025
Introduction
In order to further clarify the application of federal securities laws to crypto assets, the corporate finance department has issued an opinion on certain types of crypto assets commonly referred to as “stablecoins.” Specifically, this statement concerns stablecoins that are designed to maintain a stable value relative to the US dollar (USD), which can be exchanged at a 1:1 ratio for USD (i.e., 1 stablecoin for 1 dollar), and are backed by reserve assets that are considered to have low risk and liquidity, with their dollar value reaching or exceeding the redemption value of circulating stablecoins. As described below, we refer to the types of stablecoins involved in this statement as “collateralized stablecoins.”
Stablecoin Overview
A stablecoin is a crypto asset designed to maintain a stable value relative to a reference asset such as the US dollar or other fiat currencies, commodities such as gold, a pool of assets, or a basket of assets. Stablecoins are generally designed to track the value of a reference asset on a 1-to-1 basis. Stablecoins may use different methods to maintain a stable value. In some cases, stablecoins maintain a stable value by reserving assets. In other cases, stablecoins are designed to maintain stable value using mechanisms other than reserves, such as using algorithms that increase or decrease the supply of stablecoins based on demand. The risks associated with stablecoins vary widely depending on a number of factors, including their stability mechanisms and the maintenance of reserves, if applicable. Stablecoin issuers typically issue and sell stablecoins at a price corresponding to the reference asset, on a 1-for-1 basis. For example, if a stablecoin is referenced in the U.S. dollar, the issuer will issue and sell a stablecoin for one dollar. Stablecoins can be issued and traded in sporadic quantities, in which case the stablecoin maintains a one-to-one reference (i.e., 0.5 stablecoins represent $0.50). Issuers typically use assets in reserve to fund stablecoin redemptions (i.e., deliver stablecoins on a 1-for-1 basis in exchange for reference assets).
The Financial Sector’s View on Guaranteed Stablecoins
The department believes that the issuance and sale of guaranteed stablecoins in the manner and circumstances described in this statement does not involve the issuance and sale of securities as defined in Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”). Therefore, individuals participating in the “minting” (or creation) and redemption of guaranteed stablecoins are not required to register these transactions with the Commission under the Securities Act, nor do they fall within the categories exempted from registration under the Securities Act.
Characteristics of Guaranteed Stablecoins
Collateralized stablecoins are a type of crypto asset designed and sold for payments, transfers, or storing value. They aim to maintain a stable value relative to the US dollar, backed by US dollars and/or other assets considered low-risk and highly liquid, so that the issuer of the collateralized stablecoin can fulfill redemption requests. These assets are reserved in the form of US dollar value, with their value reaching or exceeding the redemption value of the collateralized stablecoins in circulation. Issuers of collateralized stablecoins can mint and redeem collateralized stablecoins at any time at a 1:1 ratio with US dollars without limit. In other words, issuers of collateralized stablecoins are always ready to mint collateralized stablecoins at 1 US dollar (or a relevant portion) and redeem collateralized stablecoins at 1 US dollar (or a relevant portion), with no restrictions on the number of collateralized stablecoins minted or redeemed by the issuer. Through this fixed price, unlimited minting-redeeming structure, the market price of collateralized stablecoins may remain stable relative to the US dollar.
Collateralized stablecoins are minted by issuers and provided and sold by issuers or designated intermediaries. In some cases, any holder is eligible to mint or redeem collateralized stablecoins directly with the issuer at a 1:1 ratio corresponding to the value of the US dollar. In other cases, only designated intermediaries are eligible to mint or redeem collateralized stablecoins directly with the issuer at a 1:1 ratio corresponding to the value of the US dollar. In the latter case, holders other than designated intermediaries cannot mint or redeem collateralized stablecoins directly with the issuer and can only buy and sell collateralized stablecoins through secondary market transactions, which may include transactions with designated intermediaries.
The market price of collateralized stablecoins in the secondary market may fluctuate compared to their redemption price. The fixed price of collateralized stablecoins and the unrestricted minting-redeeming structure provide designated intermediary institutions or other qualified holders who can directly mint and redeem collateralized stablecoins with arbitrage opportunities to maintain the stability of the market price relative to the redemption price. For example, if the market price is higher than the redemption price, such parties will directly mint collateralized stablecoins with the issuer and sell them to the market, which may increase supply and lead to a decrease in the market price, bringing it closer to the redemption price. Alternatively, if the market price is lower than the redemption price, such parties will buy collateralized stablecoins in the secondary market and redeem them directly with the issuer, which may decrease supply and lead to an increase in the market price, bringing it closer to the redemption price.
Marketing of Guaranteed Stablecoins
Regulated collateralized stablecoins are intended for commercial use only, as a means of payment, transfer, and/or storage of value, rather than for investment. Marketers may sometimes emphasize that regulated collateralized stablecoins offer a stable, fast, reliable, and easy-to-use means of payment, transfer, and/or storage of value. Marketers may also liken regulated collateralized stablecoins to “digital dollars.” Marketers may sometimes point out that regulated collateralized stablecoins:
Aims to have a stable value relative to or corresponding to the US dollar (for example, 1 collateralized stablecoin corresponds to 1 US dollar);
Does not grant stablecoin holders any rights to receive interest, profits, or other returns;
does not reflect any investment or other ownership interest in regulated collateralized stablecoin issuers or any other third party;
No guarantee of any governance rights to the holders of the guaranteed stablecoin or the issuer of the guaranteed stablecoin; and/or
The financial performance of regulated stablecoin issuers or any third party will not bring any financial benefits or losses to holders of regulated stablecoins.
As described below, we believe that marketing guaranteed stablecoins in these ways indicates that guaranteed stablecoins are not offered or sold as securities.
Reserves
Collateralized stablecoin issuers use the proceeds from the sale of collateralized stablecoins to purchase assets, which are then deposited into a pooled account called a “reserve”. The assets held by the reserve include U.S. dollars and/or other assets that are considered low-risk and highly liquid in order to guarantee that the stablecoin issuer is able to cash out all spot redemptions. The assets held by the reserve always support the amount of the outstanding guaranteed stablecoin at least 1 to 1. The assets in the reserve are only used to pay for redemptions, but the issuer may receive a benefit from the assets in the reserve. While the assets in the reserve can be sold to redeem the collateralized stablecoin, they are separate from the assets of the collateralized stablecoin issuer or any third party and are not commingled. In addition, the assets in the reserve are: (1) will not be used to guarantee the operations or general business purposes of the stablecoin issuer; (2) will not be lent, mortgaged or sub-pledged for any reason; and (3) held in such a way that it is not subject to third-party claims. To this end, the collateralized stablecoin issuer will not use the assets in the reserve for trading, speculation, or arbitrary investment strategies. While collateralized stablecoin issuers may, at their discretion, proceeds (e.g., interest) from the use of these assets, such proceeds will not be paid to collateralized stablecoin holders. In some cases, a collateralized stablecoin issuer issues a “proof of reserves” that the issuer uses as a verification method or audit to prove that the collateralized stablecoin has sufficient reserves to back it up.
Legal Discussion
The Securities Law Article 2(a)(1) and the Trading Law Article 3(a)(10) define the term “securities” by providing a list of various financial instruments, including “stocks,” “notes,” and “debt certificates.” Since stablecoins share some common characteristics with notes or other debt instruments, we analyze them based on the testing standards proposed in the case of Reves v. Ernst & Young. As described below, we also analyze them according to the testing standards proposed in the case of SEC v. W.J. Howey Co.
Reves Analysis
In the Reves case, the U.S. Supreme Court held that since “notes” are one of the instruments listed in the definition of “securities” under the Securities Act and the Exchange Act, it can be presumed that notes are a type of security. This presumption may be overturned because the notes are very similar to several types of notes issued in typical commercial transactions and can therefore reasonably be excluded from the definition of securities. This so-called “family resemblance” test considers four factors.
The motivations of the seller and the buyer. This factor considers the reasonable motivations that drive both parties to reach a transaction.
Bill allocation plan. This factor inquires whether the bill belongs to the “common transactions for speculation or investment” bills.
Reasonable expectations of the investing public. This factor asks whether the investing public has reasonable expectations that the notes are securities governed by federal securities laws.
Risk reduction characteristics. This factor asks whether there are significant risk reduction tools present, thereby eliminating the need to apply certain features of the Securities Act and the Exchange Act, such as whether there are other regulatory schemes.
The federal court applies the Reves test as a whole, serving as a balancing test that does not consider any single factor in determining whether a note is a security.
Motivations of Sellers and Buyers
If the seller’s purpose is to raise funds for general business use or to provide funding for significant investments, and the buyer is primarily interested in the profits expected from the notes, then the notes are likely to be classified as securities. However, if the notes are exchanged for commercial or consumer purposes, they are less likely to be regarded as securities. As mentioned above, buyers purchase regulated collateralized stablecoins for their stability, as well as for accompanying commercial transactions or as a store of value. Since regulated collateralized stablecoins do not pay or guarantee interest payments, nor do they transfer any payment or asset rights in any other way unless exchanged at a 1:1 ratio for USD, buyers have no incentive to purchase and hold regulated collateralized stablecoins for profit. The issuers of collateralized stablecoins use the proceeds from sales to fund reserves; although they may use the income from reserves to support their business, the issuance and purchase of collateralized stablecoins are for commercial purposes rather than investment purposes.
Tool Allocation Plan
The Supreme Court explained in the Reves case that this factor considers whether there is a “common trading for speculation or investment.” This factor is met when the instrument “is offered and sold to the general public,” which is the case for collateralized stablecoins. However, the price stability design of collateralized stablecoins helps ensure that any secondary market trading is not for speculation or investment. If the market price of a collateralized stablecoin fluctuates from its redemption price, there may be arbitrage opportunities in the secondary market, but if the collateralized stablecoin issuer redeems on demand and can mint and redeem the collateralized stablecoin at any time at a 1:1 ratio with USD, arbitrage opportunities will be minimized.
Reasonable Expectations of the Public
This factor involves the review of marketing and sales of the instruments. In the Reves case, the court recognized that “the advertising of these notes describes them as ‘investments’, … no rebuttal factor leads a rational person to question this description.” As mentioned above, guaranteed stablecoins are not sold as investments; rather, they are marketed as stable, fast, reliable, and available means of value transfer or value storage, not for potential profit or as investments.
Functions to Reduce Risk
Under this factor, the risk-reducing features include whether the notes are collateralized or insured, or whether they are subject to “another regulatory scheme,” thereby significantly reducing the risk of the instruments without the need to apply securities law.
The issuer of the stablecoin maintains reserves aimed at fully fulfilling its redemption obligations. The reserves consist of US dollars and/or other assets considered low-risk and highly liquid, so that the issuer of the stablecoin can honor all immediate redemptions.
Therefore, overall, the department believes that regulated collateralized stablecoins are not securities under the Reves test because: (1) the seller uses the proceeds to fund the reserves, and the buyer is not motivated by an expected return on investment; (2) the issuance of regulated collateralized stablecoins does not encourage speculation or investment trading; (3) a rational buyer may consider that regulated collateralized stablecoins are not an investment; (4) the reserves are sufficient to meet redemption demands at any time, which is a feature that reduces risks associated with collateralized stablecoins. In short, the issuance and sale of collateralized stablecoins are intended to facilitate commercial or consumer purposes.
Howey Analysis
If guaranteed stablecoins are not regarded as bills or other debt instruments, and considering that they do not fall under the definition of “securities” as explicitly listed among other financial instruments, we will conduct further analysis on the issuance of guaranteed stablecoins based on the “investment contract” test proposed by Howey. The “Howey test” is used to analyze unlisted arrangements or instruments under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Trading Act based on “economic reality”.
When assessing the economic reality of a transaction, the test standard is: whether an investment was made in a joint enterprise, with the reasonable expectation of deriving profits from the entrepreneurial or managerial efforts of others. Since the Proudfoot case, the Supreme Court has contrasted the motives of investors (those attracted by the “prospect of investment returns”) with the motives of consumers (those “driven by the desire to use or consume the goods purchased”). While federal securities law applies to investment transactions, it does not apply to consumer transactions.
As mentioned above, buyers purchase regulated collateralized stablecoins not out of a reasonable expectation of profits from the entrepreneurial or managerial efforts of others, as these instruments are not sold as investments and do not emphasize potential profits. Instead, buyers’ motivation for using or consuming regulated collateralized stablecoins is to use them as a so-called “digital dollar,” just like using dollars. Therefore, the department believes that regulated collateralized stablecoins are not offered or sold as investment contracts.
