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SEC Division of Corporation Finance: Certain U.S. Dollar-Backed Stablecoins Are Not Securities

In Short

The Situation: As the Trump administration and Congress seek to establish clear digital asset regulation, uncertainty remains on whether federal agencies consider stablecoins to be "securities" under federal law.

The Answer: On April 4, 2025, the Division of Corporation Finance ("Division") of the U.S. Securities and Exchange Commission ("SEC" or "Commission") issued a statement on stablecoins to clarify that the Division does not consider certain stablecoins to be securities under the federal securities laws ("Statement").

Looking Ahead: Because the Division's Statement does not address all types of stablecoins, further clarity may be needed going forward. Congress or regulation from the SEC could preempt the Division's Statement.

The Trump administration has moved quickly to try to "provide regulatory certainty for dollar-backed stablecoins" to promote the "development and growth of lawful and legitimate dollar-backed stablecoins." Congress also recently introduced legislation to set standards for stablecoin issuance and to exempt stablecoins from the application of securities law. The White House and Congress seek to enact this legislation before August. 

In light of these developments, and as part of the SEC's review of its past crypto-related guidance to align with current administration priorities, the Division issued a Statement indicating that the federal securities laws do not apply to the offer and sale of certain stablecoins. A stablecoin is a type of crypto asset designed to maintain a stable value relative to a reference asset, such as the U.S. dollar.

Applicability of the Statement: Covered Stablecoins

The Division limited the applicability of its Statement to stablecoins with certain characteristics and under certain circumstances, and the Division refers to these instruments as "Covered Stablecoins."

The Division outlined several characteristics defining Covered Stablecoins. The Division focuses on stablecoins that are backed by U.S. dollars ("USD") and the Statement only addresses stablecoins that: (i) maintain a stable value relative to the USD on a one-for-one basis (i.e., one stablecoin to one USD); (ii) can be redeemed one-for-one for USD; and (iii) are backed by assets held in a reserve that are considered low risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation. The Division's Statement does not cover algorithmic stablecoins—those that use algorithms to adjust the supply of stablecoins to maintain stability. 

The Division also limits the applicability of its Statement to specified circumstances of stablecoin issuance. The Statement applies to stablecoins issued under the following circumstances: (i) the stablecoins are designed and marketed for use in commerce, as a means of making payments, transmitting money, and/or storing value, and not as investments; (ii) the stablecoin issuer's assets are properly held in a sufficient reserve to cover circulated stablecoins; and (iii) the stablecoin issuer has the ability to honor redemptions on demand.

The Division highlights the ability for the secondary market to determine the price of a stablecoin. The Division explains that intermediaries can stabilize prices through arbitrage; that is, they can purchase stablecoins from the issuer and sell in the market if the price rises above the redemption value, or purchase in the market and redeem with the issuer if the price is below redemption value.

The Division's Analysis 

The Division does not regard a Covered Stablecoin to be a "security" under either the Securities Act of 1933 ("Securities Act") or the Securities Exchange Act of 1934 ("Exchange Act"). The Division's analysis focuses on the qualities, marketing, and use of Covered Stablecoins, the motivations and expectations of stablecoin holders, and the reserves of stablecoin issuers. 

As discussed in more detail below, the Division first applies the Supreme Court's Reves test to determine whether the Covered Stablecoins are "notes," and therefore securities, because those instruments share some characteristics with notes or debt instruments. If the Covered Stablecoins are determined not to be notes or debt instruments, the Division then applies the Supreme Court's broader Howey test, in the alternative, to determine whether the Covered Stablecoins are "investment contracts," and therefore securities. Under both tests, the Division concludes that a Covered Stablecoin is not a "security."

The Reves Test: Under the Supreme Court's "family resemblance" test set forth in Reves v. Ernst & Young, 494 U.S. 56 (1990), a note is presumed to be a security unless the note strongly resembles any one of several identified types of commercial notes. This test uses four factors: the motivations of buyers and sellers, whether the instruments are commonly traded for speculation or investment, the reasonable expectations of the investing public, and any risk-reducing features. 

The Division concludes that Covered Stablecoins are not securities under Reves because: (i) sellers use the proceeds to fund a reserve and buyers are not motivated by an expected return on their funds; (ii) Covered Stablecoins are distributed in a manner that does not encourage trading for speculation or investment; (iii) a reasonable buyer would likely expect that Covered Stablecoins are not investments; and (iv) the availability of a reserve adequately funded to fully satisfy redemptions on demand is a risk-reducing feature of Covered Stablecoins.

The Howey Test: Under the Supreme Court's test in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), a Covered Stablecoin would be a security if it constituted an "investment contract" based on the economic realities of the arrangement or instrument. Howey essentially asks whether there is an investment of money in a common enterprise premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.

In its Statement, the Division finds that buyers purchase Covered Stablecoins as an equivalent to U.S. dollars. These "digital dollars" do not create a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others because the stablecoins are not marketed as investments and not expected by the public to create profit. Therefore, the Division finds that Covered Stablecoins are not securities under Howey

Because Covered Stablecoins will not be deemed to be securities under the Securities Act or Exchange Act, the Division concludes that persons involved in minting and redeeming Covered Stablecoins—e.g., stablecoin issuers—will not be required to register those transactions with the SEC.

Implications and Limitations

The current Statement's Reves and Howey analyses for Covered Stablecoins and the Division's conclusion that they are not securities is straightforward and clear. This guidance stands in stark contrast to the more complex analysis set forth in the Division's recently withdrawn 2019 Framework for "Investment Contract" Analysis of Digital Assets, which included an extensive but non-exhaustive list of factors that market participants should consider when assessing whether a particular digital asset is offered or sold as an investment contract. Because of its breadth and open-endedness, digital asset industry participants did not find that prior guidance to be particularly helpful. The current Statement's clarity as to the regulatory status of Covered Stablecoins should provide more certainty for industry participants, and particularly stablecoin issuers. 

However, while the Division's Statement provides clarity on the regulatory status of a common type of stablecoin that is widely used for commercial transactions, the Statement does not apply to all stablecoins in the market. Nor does the Statement bind the Commission itself. The Statement could also be withdrawn or modified at any time. In addition, although the Statement applies to the status of Covered Stablecoins as securities under the Securities Act and the Exchange Act, it does not address whether they would be "securities" for purposes of either the Investment Advisers Act of 1940 or the Investment Company Act of 1940. It is possible that the SEC's Division of Investment Management could follow with a similar statement with respect to the acts that it administers for the Commission.

Congress's proposed stablecoin legislation, however, could, if enacted, moot the need for the Division's Statement by making clear that stablecoins are exempt from the definition of a security in all of the federal securities laws. 

Three Key Takeaways

  1. The Statement from the SEC's Division of Corporation Finance provides clarity on the status of Covered Stablecoins, confirming that they are not considered securities under the Securities Act and the Exchange Act. As a result, issuers of these instruments do not need to register their Covered Stablecoin offerings with the SEC.
  1. The Statement only applies to Covered Stablecoins and does not address other types of stablecoins, which may still be subject to the securities laws. Further, the Statement does not preclude the possible application of other federal or state laws to Covered Stablecoins.
  1. The Statement could represent how the SEC and its staff intend to approach defining what is or is not a "security" in the context of cryptocurrency and other digital assets, absent further legislation or regulation.
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