On April 4, 2025, the SEC’s Division of Corporate Finance (the “Division”) issued a statement recognizing that certain “stablecoins” are not “securities” within the meaning of 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”). This development provides needed regulatory clarity and is a notable change from the SEC’s prior approach of regulation-by-enforcement.
The Division announced that the issuance of these stablecoins does not involve the offer and sale of “securities” within the meaning of the SEC’s governing statutes, and that, therefore, their issuers do not need to register their transactions with the agency. In its statement, the SEC walked through its reasoning for this determination, which involved a legal analysis under U.S. Supreme Court cases Reves v. Ernst & Young and SEC v. W.J. Howey Co., both of which address the meaning of the term “security.”
The Division acknowledged that stablecoins share some characteristics with debt instruments (due to the issuer’s obligation to honor redemption requests) and therefore they can be viewed as a type of note. In Reves, the Court held that there is a presumption that a “note” is a security due to that term’s inclusion in the Securities Act and Exchange Act definitions of “security.” The Court explained, however, that this presumption may be rebutted by a number of factors showing that a note strongly resembles the type of note issued in connection with a typical commercial transaction.
The Division found that stablecoins fell outside the security definition under Reves. For one, stablecoins are marketed as a means of making payments, transmitting money, and/or storing value, but not as investments. Holders of stablecoins do not earn any money on their holdings; while an issuer may permissibly earn interest on the assets held in the reserve, it cannot distribute such earnings to stablecoin holders. Further, the existence of a reserve designed to allow the issuer to fully satisfy redemption obligations on demand serves to significantly reduce risk.
The Division also analyzed stablecoins under the Howey “investment contract” test, which inquires if 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. The Division determined that stablecoins do not satisfy the test because holders do not purchase them with the reasonable expectation that profit will be derived from the efforts of others because stablecoins are not marketed as investment opportunities.
Importantly, the Division’s guidance is limited to asset-backed stablecoins. Although stablecoins may take a variety of forms, the Division specifically addressed those that are “designed to maintain a stable value relative to the [USD] on a one-for-one basis, can be redeemed for USD on a one-for-one basis, and 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 did not express any view regarding other forms of stablecoins.
Takeaway
Although the statement only provides the views of the Division, it adds to the efforts of the new administration to foster a more accommodating regulatory environment for digital assets. The statement provides the first guidelines to determine what stablecoins may or may not be considered securities—departing from the prior administration’s approach to regulation by enforcement that took the position that certain stablecoins were securities. The Division’s statement thus advances the new administration’s goal to create more regulatory clarity. Nonetheless, investors should continue to monitor caselaw and guidance from the SEC.
