The U.S. Securities and Exchange Commission’s Division of Corporation Finance has issued a public statement outlining its view that certain U.S. dollar-pegged stablecoins, termed “Covered Stablecoins”, do not constitute securities under federal law.
The statement, intended to clarify the regulatory status of asset-backed digital tokens redeemable one-to-one for U.S. dollars, concludes that neither the Securities Act of 1933 nor the Exchange Act of 1934 requires registration for the issuance or redemption of such stablecoins.
“Distorted picture of the USD-stablecoin market that drastically understates its risks”
But SEC Commissioner Caroline A. Crenshaw issued a scathing dissent, warning that the staff’s legal analysis contains material factual errors and dangerously mischaracterizes the risks inherent in the stablecoin market. Crenshaw’s response, released shortly after the Division’s statement, signals internal division within the Commission on how crypto assets should be interpreted under existing securities law.
“What’s remarkable about this statement is not so much its ultimate conclusion, but the analysis staff relies on to get there,” Crenshaw wrote. “The statement’s legal and factual errors paint a distorted picture of the USD-stablecoin market that drastically understates its risks.”
“Retail coin holders do not have a ‘right’ to ‘redemption for USD on a one-for-one basis”
The Division’s guidance focuses narrowly on “Covered Stablecoins” that are fully backed by low-risk, liquid assets and redeemable on demand for USD. According to the staff, these stablecoins function primarily as tools for payment, money transmission, or value storage rather than investment vehicles, and thus do not meet the legal tests for classification as securities under Reves v. Ernst & Young or SEC v. Howey.
The Division explained that Covered Stablecoins are “marketed solely for use in commerce” and backed by reserves that are “not used by the issuer for operational purposes” and “segregated from claims of third parties.” The statement highlights that these reserves reduce investor risk and make application of securities law unnecessary.
But Crenshaw sharply disputes the reliability of these reserves and the staff’s premise that most holders of stablecoins have access to issuer redemptions. In practice, she argues, the retail market overwhelmingly interacts with stablecoins through unregulated intermediaries such as trading platforms—not directly with issuers. “It is the general rule, not the exception, that these coins are available to the retail public only through intermediaries who sell them on the secondary market,” Crenshaw stated. “Over 90% of USD-stablecoins in circulation are distributed in this way.”
According to her, most retail users are misled to believe they hold a “digital dollar” with redeemable rights, when in fact they rely on third-party intermediaries that have no contractual obligation to honor redemptions at par. As a result, retail holders cannot access the issuer’s reserve directly, and if an intermediary fails or refuses to redeem coins, holders are left without recourse.
“Retail coin holders do not, as staff claims, have a ‘right’ to ‘redemption for USD on a one-for-one basis,’” Crenshaw wrote. “If the intermediary is unable or unwilling to redeem the stablecoin, a holder has no contractual recourse against the issuer.”
“USD-stablecoins are ‘uncollateralized and uninsured”
Crenshaw also criticized the staff’s characterization of issuer reserves as “risk-reducing,” arguing that these reserves are neither collateralized nor insured in any legally meaningful way. She pointed to past run events and liquidity crises involving USD-pegged stablecoins as proof that such reserves can fail under stress.
“Just like the product at issue in Reves, USD-stablecoins are ‘uncollateralized and uninsured,’” she said. “Even intermediaries responsible for retail redemptions may not be secured creditors of the issuer.”
The Commission staff’s statement relies on a four-factor Reves test to determine that Covered Stablecoins are not notes subject to securities regulation. The statement concludes that stablecoin buyers are not motivated by profit, that the assets are not broadly traded for speculation, that public expectations align with non-security characteristics, and that the reserve serves as a key risk-reducing feature.
However, Crenshaw challenged each element of that test, particularly the final point. She pointed to SEC and PCAOB warnings that so-called “proof of reserves” published by issuers are not subject to federal audit standards and often lack transparency.
“Proof of reserve reports demonstrate no such thing,” she said. “They are not designed to and often provide no assurance as to the reliability of the information provided.”
“A retail stablecoin holder has no claim in a bankruptcy proceeding”
She added that legal protections for stablecoin holders in the event of issuer bankruptcy are unclear at best, and typically nonexistent. With no legal claim to the reserve, coin holders cannot assume their assets are protected from creditor claims.
“Without a redemption right against the issuer, a retail stablecoin holder has no claim in a bankruptcy proceeding, as an unsecured creditor or otherwise,” she noted. “The reserve does not ‘collateralize’ stablecoins held by the retail public.”
In Crenshaw’s view, the staff’s guidance also fails to account for how market structure affects price stability. Although the statement describes a theoretical arbitrage mechanism in which market participants buy and redeem stablecoins to keep the price pegged to $1, Crenshaw argued that in most real-world scenarios, price stability is maintained not by issuer actions but by intermediary behavior—and that structure remains opaque.
“Staff fails to explain if or how that occurs in the typical case of a USD-stablecoin that is purchased and redeemed by retail holders only through intermediaries,” she said. “To the extent distribution and redemption affect the retail market price, it is the intermediaries, not the issuers, whose actions matter.”
She further warned that the Division’s view may embolden unregulated stablecoin issuers and crypto platforms to market their products as equivalent to sovereign currency—something she believes poses systemic risk.
“There is nothing equivalent about the U.S. dollar and unregulated, privately-issued crypto assets that are opaque, uncollateralized, uninsured, and laden with risk at every step of their multi-layer distribution chain,” Crenshaw said. “They are risky business.”
The statement by the Division is not legally binding and does not reflect a Commission vote. It merely outlines the staff’s interpretation of current law as applied to a narrowly defined subset of stablecoins. However, the clarity it provides to some market participants stands in stark contrast to Crenshaw’s dire warnings about broader market realities.
For now, the statement applies only to Covered Stablecoins that meet specific conditions: USD-backed, fully redeemable one-for-one, with reserves made up of cash or liquid, low-risk instruments such as U.S. Treasuries. Importantly, stablecoins that offer yield or profit-sharing—often referred to as “yield-bearing stablecoins”—remain outside the scope of this guidance.
“Real disservice to USD-stablecoin holders”
Still, Crenshaw questioned whether any currently circulating stablecoins even meet the stated definition of Covered Stablecoins.
“It is hard to even understand what staff’s criteria are because the statement is written as though issuers have redemption obligations directly to retail coin holders when in general, they do not,” she said.
The release comes as the SEC continues to weigh how to regulate a digital asset space that increasingly intersects with traditional finance. Stablecoins have become essential components of crypto trading infrastructure, with more than $120 billion in market capitalization globally, according to recent estimates.
But Crenshaw warned that any suggestion of regulatory nonintervention based on an incomplete picture of risk sends the wrong message.
“These legal and factual flaws do a real disservice to USD-stablecoin holders and, given the central role of stablecoins in the crypto markets, to crypto investors more generally,” she wrote.
Crenshaw’s dissent underscores the growing challenge for the SEC as it seeks to apply decades-old securities laws to novel digital financial instruments. Whether Congress intervenes with bespoke legislation remains uncertain, but for now, the Commission’s internal debate reflects the complexity of balancing innovation, regulation, and investor protection in a fast-evolving market.
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