SEC Loosens Grip on Stablecoins — But Some Still Left in the Cold

In a shift that few saw coming, the Securities and Exchange Commission (SEC) has pulled back from regulating certain stablecoins, declaring they do not qualify as securities. That’s a big deal — because it means no registration, no SEC oversight, and no looming threat of legal crackdowns for projects that make the cut.

But the real twist? Not all stablecoins are getting a free pass.

What Are “Covered Stablecoins”?

The SEC introduced a new classification — “Covered Stablecoins” — and it’s already creating waves. These are dollar-pegged stablecoins that maintain a 1:1 value with the U.S. dollar, backed by highly liquid and safe assets. Think USDC or PayPal’s PYUSD, which are fully backed and easily redeemable.

According to the SEC’s Division of Corporation Finance, these coins don’t behave like investments, so the agency won’t regulate them like it does securities. This means more freedom and fewer legal roadblocks for developers — a welcome relief for companies walking on regulatory eggshells.

Circle’s President Heath Tarbert was quick to applaud the decision, saying it validates projects that play by the rules and back their tokens with real money.

But Here’s the Catch

The SEC’s guidance very clearly excludes:

• Algorithmic stablecoins (which rely on code to maintain their peg)
  
• Interest-bearing stablecoins (that offer users yield)
  
• Asset-backed coins (tied to things like gold or foreign currencies)
  

These types still live in a gray zone — and might still be classified as securities, depending on how they’re used or promoted. For investors and builders in these areas, the regulatory uncertainty remains very real.

No Interest Allowed — Yet

One crucial detail buried in this decision? Even though these “covered” stablecoins can earn interest on the reserves they hold, they’re not allowed to pass any of that interest onto users. That means no passive income just for holding stablecoins — at least not under the current setup.

Coinbase CEO Brian Armstrong isn’t thrilled. He’s pushing for Congress to step in and update the rules, allowing users to earn without triggering security laws. His frustration reflects a broader tension between innovation and regulation in the crypto world.

Congress Gets Involved

Meanwhile, lawmakers aren’t sitting idle. Bipartisan bills are already moving through both the House and Senate that aim to create a clearer, more crypto-friendly regulatory framework for stablecoins.

With the 2025 election cycle heating up, crypto is becoming a talking point on Capitol Hill. Trump-aligned lawmakers are pushing their own agendas, while others look to the SEC’s upcoming crypto summit, which promises to be a showdown over how crypto trading should be regulated.

This move by the SEC marks a turning point. For dollar-backed stablecoins, the path ahead just got smoother. But for the rest of the market, the fog hasn’t cleared yet.

The message is clear: Play by the rules, back your coins with cash, and you might just get the SEC off your back. But if you’re trying to innovate outside that mold, the fight isn’t over.