On April 5, the US SEC corporate financial department issued a new stablecoin policy.

SEC has created a new term - a regulated secured stablecoin used to describe stablecoins that maintain a stable value relative to the US dollar, can be converted to US dollars at 1:1 (i.e., 1 stablecoin for 1 US dollar), backed by reserve assets and is considered low-risk and highly liquid, with a value of US dollars reaching or exceeding the redemption value of the circulating stablecoin." That is, 1 stablecoin is exchanged for 1 dollar), and supported by reserve assets, which are considered to be low in risk and strong in liquidity, and their dollar value reaches or exceeds the redemption value of the circulating stablecoin.

The agency stated that regulated secured stablecoins are not provided or sold as investment contracts and are therefore not within the scope of the SEC's regulation.

Some people believe that the US moves are all further consolidating its dominance in the global reserve currency in the "digital economy". Let the US dollar take the lead in the future competition in the digital economy.

In addition, the statement does not include algorithmic stablecoins, interest-generating stablecoins, and stablecoins that track the value of assets outside the US dollar.

The full text of the new regulations is as follows:

Statement on Stablecoins

Company Financial Department

April 4, 2025

Introduction

In order to further clarify the application of the Federal Securities Law on crypto assets, the corporate financial department has expressed its opinions on certain types of crypto assets commonly known as "stablecoins". Specifically, this statement relates to stable coins designed to maintain stable value relative to the US dollar (USD), which can be converted into US dollars at a 1:1 ratio (i.e., 1 stablecoin for 1 dollar), and is backed by reserve assets that are considered to have low risk and liquidity, with a US dollar value reaching or exceeding the redemption value of the circulating stablecoins. As described below, we refer to the type of stablecoin involved in this statement as "secured stablecoins".

Stablecoin Overview

Stablecoin is a crypto asset designed to maintain stable value relative to reference assets such as US dollar or other fiat currencies, commodities such as gold, asset pools or baskets of assets. Stablecoins are generally designed to track parameters in a 1-to-1 wayTest the value of assets. Stablecoins may use different methods to maintain stable value. In some cases, stablecoins maintain stable value through reserve assets. In other cases, stablecoins are designed to maintain stable value using mechanisms other than reserves, such as using algorithms that increase or decrease the supply of stablecoins based on demand. The risks associated with stablecoins vary greatly due to a variety of factors, including their stability mechanism and maintenance of reserves (if applicable). Stablecoin issuers usually issue and sell stablecoins at prices corresponding to reference assets, and are based on 1 to 1. For example, if the stablecoin is referenced by the US dollar, the issuer will issue and sell a stablecoin at a price of one dollar. Stablecoins can be issued and traded in sporadic quantities, in which case the stablecoins remain one-to-one reference (i.e., the 0.5 stablecoin represents $0.50). Issuers usually use reserved assets to fund stablecoin redemption (i.e., delivering stablecoins in a 1-to-1 way in exchange for reference assets).

The view of the financial sector on secured stablecoins

This department believes that issuance and sale of secured stablecoins in the manner and circumstances described in this statement does not involve the issuance and sale of securities under section 2(a)(1) of the Securities Act 1933 (Securities Act) or section 3(a)(10) of the Securities Exchange Act 1934 (Transaction Act). Therefore, persons involved in "minting" (or creating) and redemption of secured stablecoins are not required to register these transactions with the Commission under the Securities Act, nor are they exempt from registration as stipulated in the Securities Act.

Friendly Stablecoins Features

Friendly Stablecoins are crypto assets designed and sold for payment, transfer or store value. They are intended to maintain a stable value relative to the US dollar and backed by the US dollar and/or other assets deemed as low-risk and highly liquid, in order to secure the stablecoin issuer to fulfill the redemption requirement. These assets are reserved in the form of US dollar value, whose value reaches or exceeds the redemption value of the secured stablecoin in circulation. The issuer of the guaranteed stablecoin can mint and redeem the guaranteed stablecoin at an unlimited amount in a 1:1 ratio at any time. In other words, the issuer of the guaranteed stablecoin is ready to mint a secured stablecoin for 1 USD (or related part) at any time and redeems a secured stablecoin for 1 USD (or related part) and there is no limit on the number of secured stablecoins minted or redeemed by the issuer. With this fixed-price, unlimited minting-redemption structure, the market price of the secured stablecoin may remain stable relative to the US dollar.

The guaranteed stablecoins are minted by the issuer and provided and sold by the issuer or designated intermediary. In some cases, any holder is eligible to mint or redeem secured stablecoins directly with the issuer in a 1-to-1 ratio, corresponding to the dollar value. In other cases, only designated intermediaries are eligible to be 1 to 1 ratioDirectly minting or redeeming guaranteed stablecoins corresponding to the value of the US dollar to the issuer. In the latter case, holders other than the designated intermediary cannot mint or redeem secured stablecoins directly to the issuer, and can only purchase and sell secured stablecoins through secondary market transactions, which may include transactions with the designated intermediary.

The market price of a secured stablecoin in the secondary market may fluctuate with its redemption price. The fixed price, unlimited minting-redemption structure of secured stablecoins provides arbitrage opportunities for designated intermediaries or other holders who are eligible to directly mint and redeem secured stablecoins to keep the market price stable relative to the redemption price. For example, if the market price is higher than the redemption price, such a party will directly mint the secured stablecoin with the issuer and sell it to the market, and the increased supply may cause the market price to fall and be closer to the redemption price. Alternatively, if the market price is below the redemption price, such parties will purchase the secured stablecoin in the secondary market and redeem it directly to the issuer. The reduced supply may lead to a rise in the market price and be closer to the redemption price.

Marketing Stablecoins Marketing

Regulated secured stablecoins are for commercial purposes only as a means of payment, transfer and/or storing value, not investment. Marketers sometimes emphasize that regulated secured stablecoins provide a stable, fast, reliable and easy-to-use means of paying, transferring and/or storing value. Marketers may also compare regulated secured stablecoins to "digital dollars." Marketers may also sometimes point out that regulated secured stablecoins:

is intended to have a stable value relative to or corresponding to the US dollar (e.g., 1 secured stablecoin corresponds to 1 US dollar);

does not give the secured stablecoin holder the right to obtain any interest, profit or other return;

does not reflect any investment or all other interest in the regulated secured stablecoin issuer or any other third party;

is not provided the secured stablecoin holder any governance rights to secured stablecoin issuer or secured stablecoin; and/or

No financial benefit or loss to regulated stablecoin holders based on the financial performance of the regulated stablecoin issuer or any third party.

As discussed below, we believe that marketing secured stablecoins in these ways indicates that secured stablecoins are not provided or sold as securities.

Store

The issuer of the secured stablecoin purchases assets using the proceeds from the sale of the secured stablecoin and then deposits the assets into a collective account called "Reserves". The assets held by the reserve include USD and/or other assets considered low-risk and highly liquid in order to ensure that the issuer of stablecoin can cash out all spot redemptions. The assets held by the reserve always support the amount of outstanding secured stablecoins at least 1 to 1. The assets in the reserve are used only to pay redemptions, but the issuer may gain from the assets in the reserves. While assets in the reserves can be sold to redeem secured stablecoins, they are separate from the assets of the secured stablecoin issuer or any third party and will not be mixed together. In addition, assets in the reserves are: (1) not used to secure the operational or general business purposes of the stablecoin issuer; (2) not lent, mortgage or re-secured for any reason; and (3) the holding method will not affect it by third-party claims. To this end, the guaranteed stablecoin issuer will not use reserved assets for trading, speculation or arbitrary investment strategies. While the issuer of the secured stablecoin may use the proceeds (such as interest) of these assets at his sole discretion, such income will not be paid to the holder of the secured stablecoin. In some cases, the issuer of the secured stablecoin will issue a "proof of reserve" that the issuer uses as a verification method or audit to prove that the secured stablecoin has sufficient reserves as support.

Legal Discussion

Securities Act Articles 2(a)(1) and 3(a)(10) of the Exchange Act respectively define the term "securities" by providing a list of various financial instruments including "stocks", "notes" and "debt documents". Since stablecoins share some common characteristics with notes or other debt instruments, we analyze them based on the test criteria proposed in Reves v. Ernst & Young. As described below, we also conduct an analysis based on the test criteria proposed in SEC v. W.J. Howey Co.

Reves Analysis

In the Reves case, the U.S. Supreme Court held that since "notes" are one of the instruments listed in the definition of "securities" in the Securities Act and the Exchange Act, it can be presumed that the notes are a type of securities. This presumption may be overturned because notes are very similar to several notes issued in typical commercial transactions and can therefore be reasonably excluded from the definition of securities. This so-called "family similarity" test takes into account four factors.

The motivations of the seller and the buyer. This factor takes into account the reasonable motivations that prompt the buyer and seller to reach a deal.

Bill allocation plan. This factor asks whether the notes are "common transactions used for speculation or investment."

Reasonable expectations of the investing public. This factor asks the investing public whether the notes are reasonably expected to be securities governed by federal securities laws.

Reduce risk characteristics. This factor asks whether the notes have significantly reduced instrument risks, thus eliminating the application of certain features of the Securities Act and the Exchange Act, such as the existence of other regulatory options.

The federal court applies the Reves test as a whole, as a balance test, and does not consider any factor separately when determining whether a note is a securities.

Seller and Buyer's Motives

If the seller's purpose is to raise funds for the general purpose of the business or to provide funds for a significant investment, and the buyer is primarily interested in the profits expected to arise from the Note, the Note is likely to belong to the securities. However, if the notes are exchanged for commercial or consumer purposes, the notes are unlikely to be considered as securities. As mentioned above, buyers purchase regulated secured stablecoins for their stability, as well as accompanying commercial transactions or as store of value. Since the regulated secured stablecoins do not pay or guarantee interest payments, and do not otherwise transfer any payment or asset rights, unless exchanged 1 to 1 into US dollars, buyers have no incentive to buy and own regulated secured stablecoins to make profits. The issuer of the secured stablecoin uses proceeds from sales to fund reserves, and although it may use the proceeds of the reserves to support its business, the issuance and purchase of secured stablecoins is for commercial purposes rather than investment purposes.

Application Plan for Tools

The Supreme Court explained in the Reves case that the factor considers whether there is a "co-transaction for speculation or investment." This factor is met when the tool is "provided and sold to the general public", and that is exactly the case with secured stablecoins. However, the price stability design of secured stablecoins helps ensure that any secondary market transaction is not for speculation or investment. If the market price of the secured stablecoin fluctuates with its redemption price, there may be arbitrage opportunities in the secondary market, but if the issuer of the secured stablecoin cashes on demand and mints and redeems in US dollars at any time in a 1-to-1 ratio, the arbitrage opportunities will be minimized.

Reasonable public expectations

This factor involves the review of tool marketing and sales. In Reves, the court admitted that "the advertisements of these notes describe them as ‘investment’, … There is no rebuttal factor that leads a rational person to question this description." As mentioned above, secured stablecoins are not sold as investments; instead, they are used as stable, fast, reliable and availableValue transfer or store of value means sales, not for potential profits or as investments.

Risk Reduction Function

Under this factor, the risk reduction function includes whether the bill is mortgaged or insured, or whether it is subject to "another regulatory plan", thereby significantly reducing the risk of the instrument without the need to apply securities laws.

The secured stablecoin issuer maintains the reserves, designed to fully fulfill its redemption obligations, and the reserves are composed of US dollars and/or other assets deemed to be low-risk and highly liquid, so that the secured stablecoin issuer can cash out all spot redemptions. Therefore, overall, this department believes that regulated secured stablecoins do not belong to securities under the Reves Act because: (1) the seller uses income to fund reserves, and the buyer is not motivated by the expected return on funds; (2) the issuance of regulated secured stablecoins does not encourage speculation or investment transactions; (3) a rational buyer may think that regulated secured stablecoins are not investments; (4) sufficient reserves are sufficient to meet the need for redemption at any time, which is a characteristic of the risk reduction of secured stablecoins. In short, the issuance and sale of secured stablecoins is for commercial or consumer purposes.

Howey Analysis

If a secured stablecoin is not considered a note or other debt instrument, and considering that it does not belong to other financial instruments explicitly listed in the definition of "securities", we will further analyze the issuance of the secured stablecoin based on the "Investment Contract" test proposed by Howey. The "Ouvian Test" is used to analyze arrangements or instruments not listed in Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act in accordance with the Economic Reality.

In evaluating the economic reality of a transaction, the test criteria are whether investments have been made in a common enterprise, provided that profits are reasonably expected to be obtained from other people's entrepreneurial or management efforts. Since the Pride case, the Supreme Court has compared investors' motivations (i.e. those attracted by the "return on investment prospects") with consumers' motivations (i.e. those "out of a desire to use or consume the items you buy." Although the federal securities laws apply to investment transactions, they do not apply to consumer transactions.

As mentioned above, the purchaser's purchase of regulated secured stablecoins is not based on reasonable expectations of profits made by others' entrepreneurial or management efforts, as these tools are not sold as investments and do not emphasize potential profits. Instead, the motivation for buyers to use or consume regulated secured stablecoins is to use them as so-called "digital dollars" just like using them. Therefore, this department believes thatThe secured stablecoins are not provided or sold as investment contracts.