In April 2025, the U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance issued a policy statement regarding stablecoins, providing the clearest institutional view on the question of whether stablecoins constitute securities.

This statement does not have legal effect, but the signals it sends in regulatory practice cannot be ignored. It systematically explains for the first time under what conditions a certain type of “compliant stablecoin” is not subject to the requirements of federal securities law.

For the industry, this serves as a relatively clear legal qualification reference and also constitutes an important basis for the design and compliance assessment of future stablecoin projects.

Scope of Policy Application: The Three Basic Conditions for “Compliant Stablecoins”

The SEC clearly stated in its announcement that it is only discussing stablecoins that possess the following three characteristics simultaneously:

1. Pegged to the US dollar: The value of the coin maintains a fixed exchange relationship of 1:1 with the US dollar;

2. Redeemable for USD: The issuer supports users to exchange stablecoin for USD at a 1:1 ratio at any time;

3. Real reserves support: Reserve assets must be low-risk and highly liquid assets, and the total value must always be greater than or equal to the total amount of stablecoins in circulation.

These products are referred to by the SEC as “Covered Stablecoins,” and it is explicitly stated that their use cases should be limited to commercial functions such as payments, transfers, and storing value, without involving rights to earnings or investment interests, nor should they possess characteristics of securities such as governance rights, profit sharing, or claims on assets.

In other words, the SEC will only consider such products as potentially compliant stablecoins (Covered Stablecoins) that do not constitute securities if the anchoring logic is clear, the redemption mechanism is complete, and the asset reserves are robust and transparent.

From the compliance stablecoin characteristics emphasized in this document, it is not applicable to the following types of stablecoins:

• Stablecoins pegged to non-US dollar assets (such as gold, other cryptocurrencies, and commodities);
• Use algorithmic mechanisms to adjust supply to maintain the pegged “algorithmic stablecoin”;
• A coin that is nominally pegged to the US dollar but does not actually redeem for US dollars.
• “Yield stablecoins” that provide interest, returns, or dividends.

This classification essentially excludes most of the non-custodial stablecoin products currently on the market that have yield characteristics or insufficient reserve transparency.

Core Judgment Logic of the SEC: Application of Two Major Judicial Test Analyses

The analysis section of the statement is based on two standards from U.S. securities law case law:

1. Reves standard: To determine whether a financial instrument constitutes a “note” or other security-like debt instrument;

2. Howey Test Standard: To determine whether an arrangement constitutes an “investment contract,” which is a typical securities issuance model.

These two standards constitute an important pathway for the U.S. federal court system to qualitatively assess financial instruments based on the “facts first” principle, and they are key analytical tools for many cryptocurrency projects being identified as securities in SEC investigations.

• Part One: Why Does it Not Constitute a “Note”? (Analysis of the Reves Case)

The SEC analyzed the “compliant stablecoin” across four dimensions:

First, the true intention of the trading purpose. The document points out that the buyers of compliant stablecoins are usually not motivated by profit but by commercial functions such as payment, transfer, and storage of value. Such stablecoins also do not provide users with any rights to returns or investment return promises. Therefore, there is a fundamental difference from traditional “financing notes.”

The second characteristic is the circulation method. Although these stablecoins can circulate in the secondary market, their design goal is to be pegged 1:1, resulting in limited price fluctuations and a redemption mechanism, which does not provide typical speculative or investment incentives.

Thirdly, investor expectations. The SEC emphasizes that such stablecoins have not been marketed as “investment opportunities” and will not lead holders to form expectations of “future profits.”

Fourth is the risk control mechanism. This is a key point particularly emphasized in the statement. The reserve assets of compliant stablecoins must meet the following requirements:

• Reserve assets are limited to payment requests and shall not be used for daily operations;
• Reserve assets must not be lent, pledged, or re-pledged;
• Reserve assets must be independent of the issuer’s assets and isolated from third-party claims;
• The reserve earnings that the issuer can obtain are not distributed to the holders and do not create an investment relationship.

Based on these structural arrangements, the SEC believes that this type of stablecoin possesses significant risk control mechanisms, sufficient to support its determination that securities laws do not apply.

• Part Two: Why Does It Not Constitute an “Investment Contract”? (Howey Case Analysis)

The SEC further analyzed that, even if it does not constitute a “note”, it still needs to apply the Howey test to determine whether it constitutes an “investment contract”.

The four elements of the Howey test are:

• Is there any capital investment?
• Whether to merge into a joint venture;
• Do investors have profit expectations;
• Is the profit derived from the efforts of others.

The statement believes that users of Covered Stablecoins have no investment purpose when purchasing, and their funds are only used to obtain stablecoins of equivalent value, rather than to share in any profit expectations.

In addition, such stablecoins are positioned in the market as “payment and store of value tools” rather than as “future profit rights certificates,” and they are not promoted as investment products that can bring asset appreciation. Therefore, they do not meet the two core criteria of “profit expectation” and “efforts of others” in the Howey test.

The SEC’s conclusion is that the structure and promotional methods of Covered Stablecoins do not possess the legal attributes of an investment contract and therefore do not constitute securities.

Direct impact on the industry: providing a compliance path that can be referenced

From the perspective of regulatory policy, the key significance of this document lies not in “loosening” but in its clear delineation of a stablecoin model that can be considered non-security for the first time, providing a reference framework for market participants in product design, disclosure obligations, and risk management.

It also conveys the following important signals:

1. The reserve mechanism, payout mechanism, and compliance boundaries are closely related. Stablecoins that lack transparency or mix reserve assets may be considered securities.

2. The income attributes are extremely sensitive. As long as it involves “interest”, “rewards”, “dividends”, or “governance rights”, it may be presumed to be an investment-type product.

3. The promotional content and market positioning will be taken into account. The SEC specifically pointed out that whether investors view a particular asset as a security partly depends on how the project party promotes its use and functionality.

4. Regulatory judgments will be based on case facts, and the document only provides guidance. The statement emphasizes that its analysis applies only to a specific type of asset-backed stablecoin, and whether an actual project constitutes a security still requires a case-by-case analysis.

Summary by Attorney Mankun

For entrepreneurs and project parties, this is a clear guidance but with high compliance standards. It also reflects that U.S. regulators do not intend to implement a “one-size-fits-all” ban on stablecoin businesses, but are willing to establish actionable boundaries through factual determinations and regulatory precedents.

For overseas institutions, compliant payment service providers, and even traditional financial institutions, this may be a clear compliance window worth exploring, and it is worth closely monitoring whether there will be further No-action Letters, test cases, or formal legislative supplements.

If in the future the SEC or a court acknowledges that a certain stablecoin meets these conditions and does not constitute a security, it would truly establish the legal status of this model. This is undoubtedly a crucial signal for the entire Web3 payment and cross-border settlement industry.

If you need further legal opinions on stablecoins, payment tokens, or compliance structure design, please feel free to contact the Mankun Law Firm team. We will continue to monitor the latest developments in global regulatory policies and provide constructive compliance advice.