Last week, the Securities and Exchange Commission (SEC) issued a statement on stablecoins declaring they are not securities and thus not regulated by the agency.
The SEC, Division of Corporate Finance, said that as long as the stablecoin is tied to the dollar and does not generate any interest or revenue for the holder, they are pretty much just another form of payment. Think credit cards.
SEC Commissioner Caroline Crenshaw lambasted CorpFin for its “factual errors” in concluding that stablecoins are not covered securities.
Crenshaw explains that stablecoins are only available through intermediaries, “particularly unregistered trading platforms” that pose risks for the user. She adds that these intermediaries are under no obligation to redeem a stablecoin tied one-to-one to the dollar. She believes that SEC staff “overstates” the assurance of the stablecoin issuer, pointing to a lack of transparency and predicting the possibility of a run-on-the-bank type scenario. Crenshaw declares they are uncollateralized and uninsured.
Crenshaw states:
“Make no mistake: there is nothing equivalent about the U.S. dollar and unregulated, privately-issued crypto assets that are opaque (clearly even to the staff), uncollateralized, uninsured, and laden with risk at every step of their multi-layer distribution chain. They are risky business.”
If anything, Crenshaw highlights the need for clarity of regulation for stablecoin issuers. Republicans in Congress attempted to pass legislation that would have provided updated rules during the last session, only to be shot down by the Democrats. As legislation addressing stablecoins is currently working its way through a Congress controlled by Republicans, there stands a good chance that new laws regulating stablecoins will be approved soon. Perhaps this will mollify Crenshaw’s concern as stablecoins may largely serve crypto trading platforms today, going forward, they may replace legacy payment rails, providing faster and less costly transfers, which would be a good thing for consumers, businesses, and for maintaining the dollar as the reserve currency.