Circle Challenges SEC’s Authority Over Stablecoins

• Stablecoin Issuer Circle files an amicus curiae brief in the case between the SEC and Binance to provide further explanation on the nature of stablecoins.

• Binance was sued by the Commission for selling unregistered securities including BNB and BUSD. 

The US Securities and Exchange Commission (SEC) recently accused Binance of violating federal securities laws by engaging in illegal sales of securities to US investors. The 53-page filing by the SEC captured 12 crypto assets as securities including “SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI.”

The filing also stated that the exchange’s native token BNB and its stablecoin BUSD have been sold as an investment contract and, hence, qualify as securities. This claim does not come as a surprise as SEC’s chair Gary Gensler is known to have said on record that most cryptos are securities.

To challenge this position, the issuer of stablecoin USDC, Circle,  has filed an amicus curiae brief in the case against Binance.

According to Circle, stablecoins do not have the required features of an investment contract and, hence, are outside the jurisdiction of the Commission. According to them, any sales of payment stablecoins without any other use qualifies as just asset sales.

They do not independently give buyers any potential for profit, and certainly not based on the efforts of the stablecoin issuer. As a result, the SEC has no jurisdiction over such stablecoins, absent additional factors that turn the sale of the stablecoin into an investment contract. Sales of payment stablecoins, without more, are just asset sales. Decades of case law support the view that an asset sale – decoupled from any post-sale promises or obligations by the seller – is not sufficient to establish an investment contract.

More Explanation by Circle

According to Circle, the purpose of the amicus brief is to explain the nature of stablecoins, but not to support either party.

The SEC’s claim that Binance offered and sold its competing stablecoin as an unregistered security raises serious legal questions affecting digital currency and the U.S. economy more broadly. Circle therefore submits this brief pursuant to Local Rule 7(o), not to support either party, but to assist the Court in understanding stablecoins and their status under the federal securities laws.

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While Circle questions the Commission’s position on BUSD being a security, the filing mentions the need to regulate stablecoins to protect both consumers and financial stability in the country. 

In a 2021 report, Gensler stated that a new product based on security must comply with the accompanying laws. Explaining this, the SEC Chair said that no product is exempted, and could be stock, or a stable value token backed by securities. According to him, the platforms, whether decentralized or centralized, that provide trade for such products must be implicated by the securities laws.

Around that time, Circle had published a breakdown of the assets backing its stablecoin, and it included cash, money market funds, commercial paper, corporate and municipal bonds, and certificates of deposits issued by foreign banks. It was then reported that some of these reserves are treated as securities under the current law. 

For now, the US authorities have been called out to provide regulatory clarity on these emerging technologies to ensure a friendly atmosphere for innovation. 

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