On April 4, 2025, the Securities and Exchange Commission (SEC) released a statement clarifying its position on reserve-backed stablecoins, stating that, under the right conditions, they will not be treated as securities under federal law.  Reserve-backed stablecoins are digital assets that are backed by low-risk, liquid assets held in reserves that meet or exceed the value of the stablecoins in circulation.  In order for such stablecoins to not be deemed a security, they must maintain a stable value relative to the U.S. Dollar (USD) on a one-to-one basis and be redeemable at any time for USD at par value.

The Reves and Howey tests, two important legal standards regarding what qualifies as security, served as the foundation for the SEC’s guidance.  Under the Reves test, the SEC concluded that  stablecoins backed by USD are not securities because they are used for commercial purposes rather than investment, are not marketed for speculation, and have risk-reducing features such as fully funded reserves.  The Howey test further supported the SEC’s view, as buyers do not purchase these stablecoins with a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others because these instruments are not marketed as investments or with any emphasis on the potent.  Rather, buyers are motivated to use or consume these so-called “digital dollars” in the same way one would use USD. 

The SEC’s statement provides regulatory clarity for issuers and users of stablecoins backed by USD and aligns with ongoing efforts by lawmakers to establish clear regulations for crypto more broadly.  Currently, members of both the House and Senate committees are advocating for the passage of the STABLE Act and the GENIUS Act – two proposed bills aimed at setting regulatory standards for stablecoin payment systems in the United States.  This represents a shift towards more formal recognition of digital dollars.  However, it’s important to note that the SEC’s recent guidance does not extend to other types of stablecoins, such as algorithmic or hybrid models, or even stablecoins backed by other currencies, which may still be subject to securities regulations.