SEC Issues New Stablecoin Guidance: Defines “Covered Stablecoins,” USDT and USDC May Qualify

The U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance released guidance on stablecoins today, providing new regulatory clarity for the rapidly evolving cryptocurrency market.

The document introduces the concept of “Covered Stablecoins” for the first time, specifying their definition and scope. According to the SEC, “Covered Stablecoins” are digital assets pegged to the U.S. dollar at a 1:1 ratio, allowing holders to redeem one stablecoin for one dollar.

To ensure stability, these stablecoins must be backed by reserve assets. These assets are required to be low-risk and highly liquid, with a dollar value equal to or exceeding the total redemption value of the stablecoins in circulation.

The SEC further clarified that “Covered Stablecoins” do not constitute investment contracts, and therefore, entities involved in their issuance (minting) or redemption are not required to register transactions with the SEC. This exempts such stablecoins from the agency’s securities oversight.

Market analysis firm The Block noted that Tether (USDT) and USD Coin (USDC), currently the most widely circulated stablecoins, may meet the criteria for “Covered Stablecoins.” Both issuers claim their reserves consist of U.S. dollar cash or highly liquid assets and provide periodic audit reports.

However, the SEC specified that algorithmic stablecoins, yield-bearing stablecoins, and those tracking assets other than the U.S. dollar fall outside the scope of “Covered Stablecoins.” This delineation establishes clear regulatory boundaries for different stablecoin types.

The head of the SEC’s Division of Corporation Finance stated that the guidance aims to offer a clear compliance pathway for the industry while safeguarding investors from potential risks. As of this writing, the issuers of USDT and USDC have not yet issued official statements in response.