US Securities and Exchanges Commission (SEC) senior advisor for digital assets, Valerie Szczepanik, says stablecoins could face an uphill battle against current securities laws.
Decrypt reports that Szczepanik made the statement at Austin’s SXSW conference where she placed stablecoins into three separate categories.
- Those backed by real assets such as gold or real estate
- Those tied to fiat currency in reserves
- Those backed by market financial mechanisms
According to the report, algorithmic and digital-asset backed stablecoins “could raise issues under securities laws.”
“It’s these kinds of projects, ‘where there is one central party controlling the price fluctuation over time,’ that Szczepanik said ‘might be getting into the land of securities.'”
Says Szczepanik,
“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.”
Szczepanik says she expects crypto winter to thaw and hopes a new wave of companies will build their projects with the SEC in mind from the start.
“I do think if we hope to smell the crypto spring in the air, it will take people walking with the regulators. But I do think the spring is going to come.”
“Not to sound cliché, but we’d much rather people come to us and ask for [permission], or come talk to us before they do something, rather than doing something and then coming in and asking for forgiveness.”
Szczepanik says the SEC isn’t fooled by any blockchain jargon and that the key to determining whether a stablecoin is a security or not is to analyze its underlying premise and its functionality.
“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.”
Reiterating SEC guidelines, Szczepanik clarifies the types of characteristics that could transform a financial instrument into a security.
“You’re talking about folks who are buying into that ecosystem, or are buying this coin, with the expectation that somebody else is going to be holding a profit, or guaranteeing a profit, or holding the price at a certain level. Again, that could raise issues under securities laws.”
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