Stablecoins Are Not Securities, According to Circle Amid SEC Lawsuits Against Binance

Stablecoin issuer Circle has stated that tokens tied to the value of a sovereign currency, like the U.S. dollar, should not be considered securities. In a court document filed recently, Circle presented its position on stablecoins without taking a side in the Securities and Exchange Commission’s (SEC) legal action against Binance.

Circle, known for being behind the second-largest stablecoin USD Coin (USDC), expressed concern over the potential impact of the SEC’s lawsuit against Binance on the stablecoin industry as a whole.

The SEC Lawsuit Against Binance

The SEC filed a lawsuit against Binance in June, accusing the exchange and its CEO Changpeng Zhao of operating unlawfully in the United States and misusing customer funds. Binance’s U.S.-based affiliate, BAM Management, was also implicated in the lawsuit.

The SEC specifically alleged that Binance offered unregistered securities, highlighting Binance USD (BUSD) as an example. The SEC took issue with the way BUSD and other offerings were marketed to investors.

Circle’s Argument

In its filing, Circle emphasized that payment stablecoins do not possess the essential features of an investment contract. According to the SEC’s criteria for determining whether an offering falls under its oversight, a crucial consideration is the expectation of profits. Circle argued that stablecoins, which can be redeemed at a constant value, do not meet this standard.

Circle also pointed out that the SEC’s allegations against BUSD centered on the context in which it was offered, rather than asserting that stablecoins are inherently securities. Binance’s additional steps, according to Circle’s attorneys, turned BUSD sales into investment contracts.

Furthermore, Circle asserted that stablecoins primarily function as payment vehicles and do not resemble financial instruments that have been deemed securities. Circle emphasized their utility and provided an analogy, stating, “People do not use a stock certificate to buy pizza, for example.”

The Regulatory Landscape for Stablecoins

Lawmakers have been considering regulatory measures for stablecoins since Facebook’s now-defunct Libra project captured their attention in 2019. The CEO of the Blockchain Association, Kristin Smith, mentioned the possibility of passing legislation related to stablecoins this year.

Regulatory agencies have also been evaluating their stance on stablecoins. Federal Reserve Chair Jerome Powell suggested that stablecoins should be regulated similarly to bank deposits and money market funds. Meanwhile, SEC Chair Gary Gensler has scrutinized stablecoins and compared them to poker chips, highlighting their potential for speculation.

A History Between Binance and USDC

Circle’s stablecoin, USDC, had a falling out with Binance in September of the previous year. Binance announced that it would no longer support USDC on its platform and would automatically convert customers’ USDC deposits to BUSD. This change affected other stablecoins on Binance as well. However, users could still withdraw funds in their stablecoin of choice.

Binance has since started accepting USDC deposits on Ethereum scaling solutions Arbitrum and Optimism. Currently, Binance is the leading venue for trading USDC, facilitating about $380 million worth of USDC trades within a day.

Editor’s Notes

The ongoing legal battle between the SEC and Binance highlights the regulatory challenges faced by the stablecoin industry. As stability in the crypto market becomes increasingly critical, it is essential to stay informed about the latest developments. For real-time updates on the crypto world, visit Uber Crypto News.