INTERVIEW ON THE PRICE OF BUSINESS SHOW, MEDIA PARTNER OF THIS SITE.
Recently Kevin Price, Host of the nationally syndicated Price of Business Show, welcomed Michele Cea to provide another commentary in a series.
The Michele Cea Commentaries
Hello this is Michele Cea, principal and founder of Cea Legal, business/real estate and crypto law firm based in New York City. The trending subject in the cryptocurrency sector is the discussion surrounding stablecoins. Stablecoins are a type of digital currency designed to maintain a stable value by being pegged to an underlying asset, typically a fiat currency like the US dollar. They combine the benefits of cryptocurrencies—such as fast transactions and digital accessibility—with the stability of traditional currencies, making them useful for payments.
the SEC Division of Corporation Finance recently issued a statement regarding stablecoins, identifying a specific category termed “Covered Stablecoins”. These stablecoins are not considered securities under the Securities Act of 1933 and the Securities Exchange Act of 1934.
the SEC Division of Corporation Finance recently issued a statement regarding stablecoins, identifying a specific category termed “Covered Stablecoins”. These stablecoins are not considered securities under the Securities Act of 1933 and the Securities Exchange Act of 1934.
1. Purpose and Marketing:
Covered Stablecoins are crafted for payments, money transactions, and value storage, explicitly indicating no investment interest or profit rights for holders. Their value is intended to remain stable against the US dollar, strictly for transactional purposes rather than investments.
Covered Stablecoins are crafted for payments, money transactions, and value storage, explicitly indicating no investment interest or profit rights for holders. Their value is intended to remain stable against the US dollar, strictly for transactional purposes rather than investments.
2. Reserves Management:
Earnings from reserves are permissible, but these funds are earmarked exclusively for redeeming stablecoins. Issuers’ reserves, potentially comprising USD and low-risk, liquid assets, must provide one-to-one backing for all outstanding stablecoins. Such reserves must remain separate from operational funds, avoiding pledges or rehypothecation, and free from potential third-party claims.
Earnings from reserves are permissible, but these funds are earmarked exclusively for redeeming stablecoins. Issuers’ reserves, potentially comprising USD and low-risk, liquid assets, must provide one-to-one backing for all outstanding stablecoins. Such reserves must remain separate from operational funds, avoiding pledges or rehypothecation, and free from potential third-party claims.
3. Issuer Activities:
Issuers must be equipped to mint and redeem stablecoins at all times, maintaining liquidity and stability in value. Although publishing proof of reserves is not mandatory, some issuers voluntarily do so.
Issuers must be equipped to mint and redeem stablecoins at all times, maintaining liquidity and stability in value. Although publishing proof of reserves is not mandatory, some issuers voluntarily do so.
4. Legal Analysis:
Using frameworks from Reves v. Ernst & Young and SEC v. W.J. Howey Co., the statement examines whether these financial instruments qualify as securities. The Reves test considers factors like buyer and seller motivations, distribution plans, and investor expectations. The stability and reserve maintenance of Covered Stablecoins help classify them outside the definition of a security, according to the tests. The Howey test confirms that buyers are motivated by transaction use, not profit expectancy, reinforcing the view that Covered Stablecoins are not investment contracts.
Using frameworks from Reves v. Ernst & Young and SEC v. W.J. Howey Co., the statement examines whether these financial instruments qualify as securities. The Reves test considers factors like buyer and seller motivations, distribution plans, and investor expectations. The stability and reserve maintenance of Covered Stablecoins help classify them outside the definition of a security, according to the tests. The Howey test confirms that buyers are motivated by transaction use, not profit expectancy, reinforcing the view that Covered Stablecoins are not investment contracts.
