SEC lays out guidelines for stablecoins, excludes algorithmic tokens

The United States Securities and Exchange Commission (SEC) released a statement on April 4 establishing guidelines for stablecoins.

In an April 4 statement, the agency minted a new term, “covered stablecoins,” classifying them as non-securities and exempting such tokens’ transactions from reporting requirements.

According to the SEC’s definition, a “covered stablecoin” is fully backed by physical fiat reserves or short-term, low-risk, highly liquid instruments and is fully redeemable at a 1:1 ratio with US dollars.

The definition precludes algorithmic stablecoins that maintain their US dollar peg using software or an automated trading strategy, leaving the regulatory status of algorithmic stablecoins, synthetic dollars, and yield-bearing fiat tokens uncertain.

Industry leaders and executives are currently pushing for regulatory changes that would allow stablecoin issuers to share yield opportunities with stablecoin holders and offer onchain interest.

According to the new guidelines, covered stablecoin issuers must never co-mingle asset reserves with operational capital or offer tokenholders interest, profit, or yield opportunities. Additionally, the covered stablecoin issuers must never use their reserves for investing or market speculation.

Related: Stablecoin supply surges $30B in Q1 as investors hedge against volatility

SEC’s definition of “covered stablecoin” consistent with broader US policy objectives

The SEC’s criteria for covered stablecoins are consistent with regulations stipulated in the GENIUS stablecoin bill, introduced by Senator Bill Hagerty, and the Stable Act of 2025, introduced by Rep. French Hill.

The proposed legislation aims to protect the status of the US dollar as the global reserve currency through stablecoins that are backed by US dollars and government securities.

Centralized stablecoin issuers back their tokens with US dollar deposits held in regulated financial institutions and short-term US Treasury Bills, driving demand for US dollars and US government debt.

Tether, the world’s largest stablecoin issuer, is now the seventh-largest holder of US Treasuries, beating out countries like Canada, Germany, and South Korea.

Speaking at the first White House Digital Asset Summit on March 7, US Treasury Secretary Scott Bessent said the US would use stablecoins to extend US dollar dominance.

Bessent said that regulating stablecoins was central to the administration’s digital asset strategy and a top regulatory priority during the current legislative session.

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