SEC Declares Fiat-Backed Stablecoins Are Not Securities

Clarity Comes for Dollar-Pegged Digital Assets After Long Regulatory Fog

The Securities and Exchange Commission officially ruled that fiat-backed stablecoins—specifically those pegged to the U.S. dollar and backed 1:1 by reserves—do not meet the legal definition of securities. The announcement, made public on April 4, 2025, through the SEC’s Division of Corporation Finance, offered a long-awaited roadmap for how U.S. regulators intend to treat dollar-backed digital assets. 

The guidance outlined that stablecoins falling under the category of “Covered Stablecoins” are exempt from the registration requirements of both the Securities Act of 1933 and the Securities Exchange Act of 1934, a major shift that removes considerable compliance burdens for issuers.

These Covered Stablecoins must be fully backed by highly liquid and low-risk reserves, including cash or U.S. Treasury bills, segregated from other corporate funds and safeguarded against third-party claims. Importantly, the SEC emphasized that the economic reality of these assets does not support their classification as securities. 

Under both the Reves v. Ernst & Young framework and the Howey Test, fiat-backed stablecoins failed to meet the thresholds for being labeled investment products. Key to this conclusion was the absence of any profit expectation by holders, the lack of yield or shared returns, and the fact that the tokens are not marketed as financial instruments designed to generate gains.

Buyers of these stablecoins typically redeem them at a fixed rate of $1, without any cap or delay, while secondary market prices are stabilized by arbitrage rather than speculation. When prices deviate from the peg, arbitrageurs respond by minting or redeeming tokens, ensuring the price gravitates back toward $1. 

This mechanism, the SEC stated, does not imply speculative intent but instead reflects a functional stabilizer in a payment tool system. The Commission also highlighted that stablecoin holders do not receive interest on their assets, nor do they benefit from returns generated by reserve assets, which are retained entirely by the issuing entity.

By drawing a legal boundary between yield-bearing and non-yield-bearing stablecoins, the SEC rejected the notion that all stablecoins could be treated the same under securities laws. Any tokens that offer annual percentage yields (APY), profit-sharing, or exposure to an issuer’s financial health would likely fall under securities regulation. That carve-out also applies to algorithmic or uncollateralized stablecoins, which remain outside the scope of this specific guidance and are still subject to future regulatory evaluation.

The ruling serves as a major regulatory milestone for crypto payment providers, exchanges, fintech platforms, and stablecoin issuers seeking clarity on their legal standing in the U.S. market. By stripping away the ambiguity surrounding token classification, the SEC appears to be clearing a path for more defined development in the digital payments sector—while still keeping a firm grip on instruments that resemble investment contracts. 

The timing also aligns with legislative activity on Capitol Hill, where lawmakers continue to push the STABLE Act and GENIUS Act to further formalize a national framework. Former President Donald Trump has voiced support for these efforts, noting that he hopes to sign stablecoin legislation into law by August 2025.

The SEC’s guidance reiterated that “Covered Stablecoins are not securities under Reves,” while also stressing that the “absence of yield or financial benefit removes a key element of the Howey test.” The tokens, the agency added, function primarily as “digital dollars” and should not be confused with investment products. By drawing clear lines, the SEC has offered a rare moment of regulatory certainty in a landscape often marked by ambiguity and legal friction.

This article has been refined and enhanced by ChatGPT.