In a potentially game-changing development, the U.S. Securities and Exchange Commission (SEC) has recently made a significant move that could reshape the future of the stablecoin market. In what’s being seen as one of their most explicit statements to date, the SEC has suggested that certain stablecoins, now being called “covered stablecoins,” might actually avoid being classified as securities, but only if they stick to a very strict set of requirements.

This fresh guidance is already causing ripples in the industry, with reports suggesting that major player Tether is rethinking its strategy to align itself with these new SEC guidelines.

“Covered Stablecoins aren’t being sold as investments; instead, they’re positioned as a stable, fast, dependable, and easy way to move money around, or to store value securely, not as something to profit from or invest in,” the SEC clarified.

The SEC’s new guidance really breaks down what it takes for a stablecoin to be considered a “covered stablecoin,” which is key to potentially escaping security status. Importantly, to qualify, these stablecoins must maintain a full 1:1 backing with good old U.S. dollars, be supported by assets that are super safe and easy to convert to cash, and promise to let holders redeem them at full value whenever they want.

The critical thing here is that these tokens absolutely cannot promise any kind of investment returns like profits or interest, or offer voting rights or ownership stakes. Their use must be limited strictly to things like payments, transfers, or simply holding value – definitely not for investment purposes.

Because these specific stablecoins are being marketed as essentially “digital dollars” rather than investment products, the SEC is arguing that they don’t fit the legal definition of securities under U.S. law. This is a surprisingly clear and direct move from the SEC, which often prefers a more ambiguous or enforcement-focused approach when it comes to crypto.

Mixed Reactions

White House crypto advisor David Sacks praised the SEC’s move, describing it as much-needed clarity that eases regulatory burdens for stablecoins that are fully backed, liquid, and pegged to the dollar. He pointed out that these types of tokens may now be off the hook for registration under the Securities Act.

On the flip side, SEC Commissioner Caroline Crenshaw criticised the guidance, cautioning that it oversimplifies the complexities of the stablecoin market and doesn’t quite capture the important legal issues at play. She believes it glosses over potential risks and paints an oversimplified picture of how these tokens actually work in practice.

SEC Rules Boost USDC but Put Pressure on USDT

These fresh guidelines seem to be a positive development for stablecoins like USDC, but they’re creating some headwinds for Tether’s USDT. The reason? The SEC isn’t allowing stablecoins to be backed by things like crypto or gold – both of which are currently part of the reserves backing USDT.

Forbes reporter Nina Bambysheva reported that Tether is actually exploring the idea of launching a brand-new stablecoin that plays by U.S. rules. This new coin would be backed only by good old cash and U.S. Treasury bills, which would be a significant shift for Tether as it faces increasing scrutiny from regulators.

Adding to this, crypto analyst Novacula Occami also pointed out that Tether’s current practice of including Bitcoin and gold in its reserves could disqualify USDT from fitting into the SEC’s “covered stablecoin” category. This could potentially mean USDT faces much stricter regulations in the U.S.

Tether CEO Not Too Concerned Over Potential US Ban

Despite the regulatory rumblings, Tether doesn’t seem overly worried about a potential US ban on its current stablecoin, USDT, according to CTO Paolo Ardoino. Showing they are on the front foot, the company is already thinking ahead by planning a separate stablecoin specifically designed for the U.S. market, one that would fully comply with the upcoming American regulations.

Ardoino mentioned that they see USDT as perfectly suited for emerging markets, but they’re definitely open to creating a distinct stablecoin specifically for the U.S. market to cater to its unique requirements.

Stablecoins are actually seeing increased adoption, even as the broader crypto market navigates a bumpy start to the year. Despite market ups and downs, their everyday use is on the rise. Interestingly, the stablecoin market actually expanded by over $30 billion in just the first quarter of the year, indicating strong and growing demand.