Stablecoins Challenged by Circle CEO: SEC’s Regulation Too Far-Reaching

• Circle CEO Jeremy Allaire has challenged the SEC’s authority to regulate Stablecoins and believes they should be treated as payment systems.
• The SEC has recently taken action against Paxos and its issuance of Binance USD (BUSD).
• The Securities Act of 1933 gives the SEC expansive jurisdiction, which goes beyond the commonly used Howey test.

Circle CEO Challenges SEC’s Stablecoin Crackdown

Circle CEO Jeremy Allaire has expressed his belief that Stablecoins should not be regulated by the SEC and are globally accepted as a payment system. This comes after the US regulator stepped up efforts to regulate cryptocurrencies following TeraUSD’s demise and the collapse of FTX.

SEC Has Broad Jurisdiction

The Securities Act of 1933 gives the SEC large scope for its jurisdiction, which goes beyond the commonly used Howey test. In October last year, Chairman Gary Gensler called for greater regulation in the US on Stablecoins following TeraUSD’s failure in May. He alluded that the Commodity Futures Trading Commission (CFTC) should have more authority over „underlying non-security tokens,“ which he believes to be the class stablecoins fall under.

SEC Takes Action Against Paxos

On February 13, 2021,the SEC issued a Wells notice to Paxos, issuer of Binance USD (BUSD). The regulator alleges that this Stablecoin is an unregistered security. Following this action,the New York Department of Financial Services (NYDFS) reportedly ordered Paxos Trust to stop issuing BUSD.

Allaire Disagrees With Authority

Allaire does not agree with this stance from the regulator and asserts that Stablecoins are payment systems and should not have their fate decided by them. He stated: „I don’t think the SEC is the regulator for Stablecoins… Clearly, from a policy perspective, [Stablecoin] is a payment system.“

Conclusion

Despite Allaire’s assertions that Stablecoins act as a payment system, it appears that they may still fall under securities law due to their ability to appreciate or depreciate in value depending on market conditions. It remains unclear how this will play out in practice but it appears likely that further regulatory clarity is needed before there can be any definitive answer on whether or not these digital assets are securities or something else entirely.