The SEC confirms that Stablecoins are questions that include yields, not securities

Stubcoins, supported by cash or cash equivalent reserves and redeemable in 1:1 US dollars, are not securities under federal law, the Securities and Exchange Commission (SEC) said on April 4, offering one of the clearest positions on the regulatory treatment of cryptocurrencies.

In an official statement, the SEC’s Corporation Finance division outlined its legal views on what is called “covered Stablecoins.”

According to the department, there is no securities transaction involved in the offer and sale of Stablecoins, and therefore registration under the Securities Act 1933 or the Securities Exchange Act 1934 is not required.

The move could provide legal clarity to Stablecoin publishers, FinTech companies and crypto payment providers that have long run due to regulatory uncertainty.

It is used for payment, not profit

According to the SEC, the eligible stubcoins are designed and sold only as tools for payment, transmission and storage of value.

They do not grant holders interest, profits, governance rights or ownership claims, and are usually referred to as “digital dollars” rather than investment products.

The SEC emphasized that these tokens are not promoted as a means of profit-making, an important distinction under federal securities law. The regulator’s conclusions were based on two groundbreaking legal standards: Revesv. Ernst & Young Test and The Howey Test.

Under Reves, the department found that covered stubcoins were similar to the means used in everyday commercial transactions, rather than speculative memos or debt securities. The agency pointed out the buyer’s non-investment motivation and lack of transactions for profit as the main reason that tokens are outside the definition of securities.

The SEC also applied the Howey Test. This involves investing money in a common company, hoping to profit from the efforts of others. The agency discovered that covered stubcoin holders are not investing in returns, and that the economic reality is not an investment contract, but a reality of consumer transactions.

Covered stablecoins

According to the SEC, the covered stub coins must be redeemable against USD at any time with unlimited quantities at a fixed price. Additionally, issuers must maintain fully supported reserves consisting of cash or liquid low-risk assets, such as US Treasury invoices.

These reserves must be isolated, not used to operate the issuer’s business and protected from third-party claims. In some cases, the publisher must publish the proof of the booking to verify solvency and transparency.

Covered stubcoins may trade in the secondary market, but their prices are usually stable through arbitrage. If the market price rises above PEG, the designated party can collectively sell new tokens for profit, increase supply and lower the price.

Meanwhile, when the price drops below PEG, you can purchase the token at a discounted price, redeem it for full value, reduce supply and unlock the price.

There are still questions about yield

The SEC emphasized that the holders of covered stubcoin have not received any returns or shares of revenue generated from the reserve assets in any way. The issuer may earn interest on assets held in the reserve, but these proceeds are held by the issuer and not distributed to the token holders.

The committee emphasized that a lack of yields or financial benefits eliminates an important component of the Howey Test: the expectations of benefits that come from the efforts of others.

By making it clear that the targeted stubcoins are not being sold as investments and do not offer upward participation, the SEC has drawn a boundary between the fiatback tokens used in the utility and those sold with the return-generating feature.

The agency noted that tokens’ promising returns, profit sharing, or exposure to issuer’s financial performance could still be subject to securities law.

This statement does not extend to steel coins that are not algorithmic or materialized. This will be subject to further legal and policy considerations. Nevertheless, the announcement is an important milestone depicting the regulatory boundaries of digital dollar equivalents.