On April 4, 2025, the Division of Corporation Finance (the “Division”) of the U.S. Securities and Exchange Commission (the “Commission”) published a statement (the “Statement”) outlining its position on stablecoins, a category of crypto asset intended to maintain a stable value in regard to a reference asset, such as the U.S. dollar, and track the value of such reference asset on a one-to-one basis. The Statement marks the second time in recent weeks that the Division has shared its views on a type of crypto asset, marking a clear departure from the Commission’s approach under former Chair Gensler.
The Statement is intended to apply narrowly to stablecoins meeting the following parameters: (i) designed to maintain a stable value on a one-to-one basis to the U.S. dollar, (ii) redeemable to the U.S. dollar on a one-for-one basis, and (iii) backed by low-risk and readily liquid assets, held in a reserve, with a U.S. dollar value that meets or exceeds the redemption value of the stablecoins in circulation (“Covered Stablecoins”). As described in the Statement, Covered Stablecoins are intended for making payments, sending money, or storing value, but not as investments. They are minted, or created, in unlimited amounts, and sold by either the issuer or an intermediary. They can be redeemed by the issuer at any time on a one-to-one basis with the reference asset. According to the Statement, “through this fixed-price, unlimited mint-redeem structure, the market price of a Covered Stablecoin is likely to remain stable relative to USD.” However, the market price of a Covered Stablecoin can fluctuate from its redemption price, such that an issuer can take action, such as minting and selling additional Covered Stablecoins, to maintain the market price relative to the redemption price.
In the Statement, the Division shared its view that the offer and sale of Covered Stablecoins, as specifically described in the Statement, does not involve the offer and sale of securities under 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”). Therefore, minters (i.e., creators) or redeemers of Covered Stablecoins do not need to register those transactions under the Securities Act or fit within one of the Securities Act’s exemptions from registration.
To support this conclusion, the Statement highlights the fact that Covered Stablecoins are marketed as “digital dollars” with payment functionality, rather than as investments, and holders are not entitled to receive any interest, profit or other returns. Holders have no ownership interest in the Covered Stablecoin issuer, and there are no governance rights associated with holding a Covered Stablecoin. The assets held in reserve for Covered Stablecoin redemptions are held separately from those of the Covered Stablecoin issuer, and cannot be used for operational purposes. The Statement notes, however, that the Covered Stablecoin issuer may generate earnings (for example, interest) on the assets, which the issuer may use at its discretion.
Analysis under Reves v. Ernst & Young[1]
The Division analyzed the status of Covered Stablecoins as a security under the “family resemblance” test outlined in Reves v. Ernst & Young because Covered Stablecoins share characteristics with notes or other debt instruments.[2] In Reves, the U. S. Supreme Court created a rebuttable presumption that, because a “note” is included in the statutory definitions of the term “security,” it will be considered to be a security. The presumption can be refuted by showing that the note is similar to one issued in a typical commercial transaction and so is not a security. The family resemblance test considers four factors:
| Reves Factor | Question Presented | Staff Analysis |
| Motivations of Seller and Buyer | Does the seller intend to raise money for a business venture while the buyer intends to generate a return on their investments, or will the note be exchanged for a commercial or consumer purpose? | Covered Stablecoins are bought for stability and use as a payment mechanism; buyers are not entitled to interest or other payments so do not buy Covered Stablecoins for profit. |
| Plan of Distribution | Is the instrument broadly available for sale to the public; is there common trading for speculation or investment? | Covered Stablecoins are widely available; however secondary market trading is not for speculation or investment. Arbitrage opportunities are minimized where the Covered Stablecoin issuer honors redemptions on demand and mints and redeems Covered Stablecoins on a one-for-one basis with the U.S. dollar at any time. |
| Reasonable Expectations of the Investing Public | How are the instruments marketed and sold? | Covered Stablecoins are not marketed for investment, but rather for payment functionality and for storing value. |
| Risk-Reducing Features | Are notes collateralized or insured, or subject to another regulatory scheme that significantly reduces the risk and renders protection under the federal securities laws unnecessary? | Covered Stablecoin issuers are required to maintain a reserve to honor redemptions, the contents of which must be low-risk and readily liquid. |
Using the foregoing points, the Division concluded that, on balance, Covered Stablecoins are not securities under Reves.
Analysis under SEC v. W.J. Howey & Co.[3]
The Division also analyzed the status of Covered Stablecoins as “investment contracts” using the test established by SEC v. W.J. Howey & Co., which considers the “economic reality” of the instrument. In other words, is there 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? If so, the instrument is likely to be a security. The Division reiterated its belief that Covered Stablecoin buyers are not intending to make a profit but are instead interested in the payment and/or value storage features of Covered Stablecoins. Therefore, the Division concluded that, under the Howey analysis, Covered Stablecoins are not securities, in concurrence with its analysis under Reves.
Commissioner Crenshaw’s Statement
Later that same day, Commissioner Caroline Crenshaw voiced her disagreement with the Statement, explaining that she believes that the Statement substantially understates the risks associated with the U.S. dollar-based stablecoin market.
Focusing particularly on the Staff’s view of the Covered Stablecoin issuer’s reserve as a risk reduction factor under the Reves test, Commissioner Crenshaw stressed that retail investors can generally only purchase and redeem stablecoins through intermediaries, against whom such investors have no legal recourse if the intermediary decides not to redeem a stablecoin, creating substantial risk that is not analyzed in the Statement. In other words, because a retail investor deals only with an intermediary, the risk-reduction feature of the issuer’s reserve does not protect that retail investor, so the investor is required to redeem at market price with the intermediary, rather than on a one-to-one basis with the issuer. In addition, the existence of the reserve does not mean that unlimited redemption requests at any time will be honored, especially in chaotic market conditions. Commissioner Crenshaw also stated that issuers’ “proof of reserve reports,” presented as “demonstrating that a stablecoin is backed by sufficient reserves,” are unregulated and potentially unreliable, rather than a source of credible information for investors. In sum, the “risk reduction” features that the Staff highlighted in its Reves analysis do not, in Commissioner Crenshaw’s opinion, function as such.
Commissioner Crenshaw also highlighted some practical challenges associated with relying on the guidance in the Statement. Since the Statement did not address the situation where retail investors purchase and redeem stablecoins from intermediaries, it leaves unconsidered the responsibilities and obligations, including disclosure requirements, of intermediaries to stablecoin investors. She closes by firmly stating her views: “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.”
Read the Statement here and Commissioner Crenshaw’s rebuttal here.
[1] 494 U.S. 56 (1990).
[2] Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act define “security” to include “stock,” “note,” and “evidence of indebtedness.”
[3] 328 U.S. 293 (1946).