USDSEC Loosens Stablecoin Accounting Rules as Credit Ratings and Enforcement Actions Shape Market Landscape
Guidance Shift, First Credit Rating, and Compliance Penalties Mark Pivotal Month for USD Stablecoins
U.S. regulators took significant steps in August to reshape the oversight of USD-pegged stablecoins, with the Securities and Exchange Commission issuing updated accounting guidance, S&P Global assigning its first-ever credit rating to a stablecoin issuer, and the New York Department of Financial Services securing a major settlement over compliance failures in a high-profile Binance partnership.
The SEC’s revised staff guidance, released August 5, states that USD stablecoins may be classified as cash equivalents if they maintain guaranteed redemption mechanisms and show value stability tied to another asset class. The change builds on April’s determination that “covered” USD stablecoins are not securities and that issuers and redeemers are not required to register these activities. This interim measure, part of Chair Paul Atkins’ deregulatory push, will stand while the agency works toward a broader crypto regulatory framework under the recently announced Project Crypto. The initiative incorporates recommendations from the President’s Working Group and, according to Bernstein analysts, represents an “unprecedented crypto framework” that could position the U.S. as a global leader in on-chain finance.
In a separate landmark move, S&P Global assigned a ‘B-’ credit rating to Sky Protocol, issuer of the $7.9 billion USDS stablecoin, marking the first time a ratings agency has assessed a stablecoin issuer. The rating reflects vulnerability to adverse conditions but acknowledges the issuer’s current ability to meet financial obligations, with a stable outlook. S&P cited high depositor concentration, centralized governance—founder Rune Christensen controls 9% of governance tokens—low voter turnout, a weak 0.4% risk-adjusted capitalization ratio, and reliance on a static surplus reserve buffer as key constraints.
Cybersecurity risks tied to asset storage in smart contracts and regulatory uncertainty for DeFi added to the concerns. These were tempered by Sky’s history of minimal credit losses during downturns, modest earnings since 2020, and rigorous smart contract audits. S&P warned of possible downgrades within a year if liquidity falls short during sudden withdrawals or if loan losses exceed reserves, while upgrades remain unlikely in the short term unless governance and capitalization improve.
Regulatory enforcement also intensified, with Paxos Trust Company agreeing to a $48.5 million resolution with the NYDFS over compliance failures linked to its 2018 partnership with Binance to issue BUSD. The deal includes $26.5 million in fines and $22 million earmarked for compliance program enhancements. NYDFS faulted Paxos for inadequate due diligence, relying on Binance’s written assurances about geofencing controls to block U.S. customers rather than conducting its own review. The agency found Binance’s compliance statements inaccurate. Paxos noted that the issues were identified and remediated more than two years ago without causing consumer harm.
In 2023, NYDFS ordered Paxos to halt BUSD issuance, and the company subsequently ended its Binance partnership. The SEC had examined whether BUSD constituted an unregistered security, issuing a notice in 2021 before dropping the investigation in 2024. The case unfolded against a backdrop of broader Binance legal troubles, including former CEO Changpeng Zhao’s 2023 guilty plea to U.S. AML and sanctions violations and a $4 billion settlement with the Department of Justice, as well as the dismissal of an SEC lawsuit in 2024 alleging the operation of an unregistered exchange.
This article has been refined and enhanced by ChatGPT.
