SEC’s Senior Advisor: Stablecoins Might be Violating Securities Law

There has been a lot of speculation regarding the position of SEC regarding the status of cryptocurrencies and tokens in relation to securities law. The issue has been debated by many industry experts both in support of and against cryptocurrencies. However, there are still a lot of things that the crypto space is in the dark about. This Friday, the SEC’s senior advisor for digital assets, Valerie Szczepanik hinted at the SEC’s stance regarding some stablecoin projects.

Talking to a crowd at Austin’s SXSW conference, Szczepanik said that stablecoins might be violating securities laws. In her talk, she broke down stablecoins into three different types: stablecoins tied to some real-world asset like property, gold or oil; coins tied to fiat currency held in reserve; and a third category which could cause issues with securities laws in the future. She said:

“I’ve seen stablecoins that purport to control price through some kind of pricing mechanism, whether it’s tied to the issuance, creation or redemption of another type of digital asset tied to it, or whether it is controlled through supply and demand in some way to keep the price within a certain band. It’s these kinds of projects, where there is one central party controlling the price fluctuation over time might be getting into the land of securities.”

Szczepanik took a step back, however, by saying that the Commission would have to consider each project individually. But in the end, it all comes down to the expectations that these projects are placing on their investors and buyers. She was of the view that the people buying these tokens are buying with the expectation that somebody else will be guaranteeing a profit or holding the price at a certain level, which raises issues under securities laws.

Szczepanik further explained that the SEC has no regard for what new label a cryptocurrency “slaps” on it’s their token. Every project will receive the same scrutiny.

“Folks like to put labels on things, but we’ll always look behind the label to see exactly what’s happening. So you can call it a utility coin, call it a stablecoin, call it a consumptive coin or some other coin. We’re going to look at the characteristics. What’s the economic reality? What’s happening with the transactions involving the coin? And we’ll give it the label that it deserves under the law.”

Gradually, the SEC’s intentions regarding stablecoins and cryptocurrencies are being revealed. However, the crypto community is still waiting for the shoe to drop. At this point, it is a near certainty that the SEC will be casting a wide net of scrutiny over the crypto space in general and stablecoins in specific. The only question that remains is the intensity of said scrutiny and control.