SEC Staff Says Certain Stablecoins Are Not Securities

Statement Comes Amid Broader SEC Effort to Clarify Application of Federal Securities Laws to Digital Asset

In a statement issued on April 4, 2025 (the “Statement”), the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) announced that certain stablecoins are not subject to federal securities laws. The Statement comes in the context of a wider push by the SEC, the Trump administration, and members of Congress to develop a more cohesive regulatory framework for stablecoins[1] and other digital assets.[2]

A stablecoin is a type of digital asset designed to maintain a stable value relative to a reference asset, such as the U.S. dollar, other fiat currencies,[3] commodities like gold or a pool of assets. Stablecoins utilize different methods to maintain a stable value relative to the reference asset, such as being backed by a reserve of assets or incorporating algorithms that calibrate the available supply of the stablecoin.

The Staff’s guidance is limited to a subset of stablecoins, defined in the Statement as Covered Stablecoins and described in further detail below. If a stablecoin exhibits the characteristics of a Covered Stablecoin, the Staff will not view the offer or sale of that Covered Stablecoin as involving a security. This alert discusses the Covered Stablecoin definition and other key elements of the Statement.

The Statement defines Covered Stablecoins as stablecoins that (i) are designed to maintain a stable value relative to the U.S. dollar (“USD”) on a one-for-one basis, (ii) can be redeemed for USD on a one-for-one basis, 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. This definition excludes stablecoins that are denominated in non-U.S. fiat currencies, are backed by illiquid assets, or are classified as algorithmic stablecoins, among others.

The Statement discusses the responsibilities of issuers and role of third-party intermediaries with regard to minting, redemption and maintaining a stable value for a Covered Stablecoin. The Statement notes that an issuer of Covered Stablecoins “always stands ready” to mint or redeem a Covered Stablecoin for one USD (or the relevant fraction) without any limitation on the amount of minted or redeemed Covered Stablecoins. The Statement acknowledges that third-party intermediaries play a role in the market for stablecoins and states that Covered Stablecoins may be minted, offered and sold by an issuer’s designated intermediaries and that such intermediaries may engage in arbitrage transactions if the secondary market price of a Covered Stablecoin fluctuates relative to its redemption price.

The Statement emphasizes that Covered Stablecoins are digital assets designed and marketed for use in commerce as a means of making payments, transmitting money or storing value—and not for investment purposes. Designing and marketing a stablecoin as an investment opportunity with the right to receive interest, profits or other returns, among other features, would prevent that stablecoin from meeting the definition of a Covered Stablecoin, even if its features otherwise met the Covered Stablecoin definition outlined in the Statement.

The Statement includes further requirements for the asset reserve that backs a Covered Stablecoin. The assets held in the reserve:

• must back the amount of outstanding Covered Stablecoins on at least a one-for-one USD basis and at all times;
• may only be used to pay redemptions;
• may not be comingled with the assets of the issuer or any third party;
• may not be used by the issuer for operational or general business purposes;
• may not be lent, pledged or rehypothecated for any reason;
• must be held in a manner designed to shield the assets from third-party claims; and
• may not be used to engage in trading, speculation or discretionary investment strategies.

While an issuer may realize interest or other earnings on reserve assets, such interest or earnings may not be paid to holders of a Covered Stablecoin.

Transactions in stablecoins that meet the definition of a Covered Stablecoin do not involve the offer and sale of securities and such transactions do not need to be registered with the SEC or covered by an exemption from registration (such as a private placement exemption for non-public securities offerings).

The Staff’s legal analysis rests on the tests set forth in two Supreme Court cases: Reves v. Ernst & Young [4] and SEC v. W.J. Howey Co.[5]

First, applying the Reves test, the Staff concluded that Covered Stablecoins are not securities despite sharing some characteristics with notes or other debt-like instruments that are securities.[6] To rebut the presumption that a note is a security, Reves requires an analysis of four factors: (1) the motivations of the seller and buyer, (2) the plan of distribution, (3) the reasonable expectations of the investing public, and (4) any risk-reducing features. Here, the Staff concluded that a Covered Stablecoin is not a security under Reves because it:

• is purchased for commercial rather than investment purposes;
• has a price stability that does not encourage trading for speculation or investment;
• is not marketed as an investment; and
• has an asset reserve that serves as a risk-reducing feature.[7]

Second, applying the Howey test, the Staff concluded that Covered Stablecoins are not offered and sold as “investment contracts.” In determining whether an arrangement or instrument is an investment contract, the Howey test considers whether there is a monetary investment in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. Here, the Staff concluded that buyers do not purchase Covered Stablecoins with a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others because Covered Stablecoins are not marketed as investments or with any emphasis on the potential for profit. The Staff noted that buyers are motivated to use or consume Covered Stablecoins as “digital dollars” in the same way one would use USD. Accordingly, the Staff does not view Covered Stablecoins as securities under Howey.[8]

The Statement notes that a definitive determination of whether a Covered Stablecoin is a security requires a fact-specific analysis of the stablecoin and the circumstances surrounding its offer and sale.

There are efforts in both the House and Senate to advance stablecoin legislation, including those that have passed out of committee in both chambers. We also expect the SEC’s efforts to establish a more focused regulatory framework for digital assets to continue in the coming months. Since the beginning of this year, SEC Acting Chairman Mark Uyeda launched a crypto task force under the leadership of Commissioner Hester Peirce with the stated aim of developing a comprehensive and clear regulatory framework for digital assets. During his confirmation hearing, SEC Chairman Paul Atkins signaled that he would focus on digital asset regulation if confirmed. In his opening statement, Atkins expressed concerns about the ambiguity of digital asset regulation and noted that one of his top priorities will be to “provide a firm regulatory foundation for digital assets through a rational, coherent, and principled approach.”[9]

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Capital Markets and Securities and Financial Services practices: