The U.S. Securities and Exchange Commission (SEC) recently issued new guidance categorizing certain stablecoins as cash equivalents under financial accounting standards, a designation that may simplify their use in everyday business but could potentially hinder innovation, experts claim.
In a report by Bloomberg, it was revealed that the SEC’s latest staff guidance proposes treating stablecoins that are backed by U.S. dollars and offer guaranteed redemption on a one-to-one basis for USD, as cash equivalents. This categorization puts these digital assets in the same bracket as actual dollars or short-term Treasury bills on a company’s balance sheet.
Implications for Stablecoins
The new SEC position means that various stablecoins, like Circle’s USDC, could be treated more like hard currency, easing their adoption into standard business operations. This development could lay the groundwork for more mainstream financial institutions to interact with stablecoins, especially in situations like settlements and global transactions.
As stated by Doug Colkitt, an initial contributor to Layer 1 blockchain Fogo, recognizing stablecoins as cash equivalents could provide a significant boost for DeFi to integrate into traditional finance sector balance sheets.
“This move might make it feasible for traditional institutions to hold and use stablecoins without jumping through hoops,” Colkitt explained to The Defiant.
A Potential Setback
However, Colkitt also warned of possible drawbacks. If the SEC’s interpretation of \”guaranteed redemption\” is overly rigid, it might impede progress in more innovative yield-bearing models that make DeFi appealing. He emphasized the urgent need for programmable money that moves with internet speed and provides yields.
“This guidance is a step in the right direction, but will it truly empower real DeFi or merely dilute cryptocurrency remains to be seen,” Colkitt noted.
Decoding the Industry Feedback
Kony Kwong, the CEO and co-founder of GAIB, also noted this development, and commented on its potential impact. Kwong agreed on the overall positive nature of the move, but pointed out that fiat-pegged tokens don’t provide underlying productivity as the yield earned from backing assets stays solely with the issuer.
“While considering them as cash might assist in integrating crypto into financial systems, synthetic dollars backed by actual economic activity would stand out by offering interest to users in an environment where capital efficiency is key,” Kwong said.
The Wider Context
The new guidance comes on the heels of SEC Chairman Paul Atkins launching ‘Project Crypto,’ an initiative aimed at bringing traditional financial infrastructure in the U.S. onto the blockchain, signaling a significant policy shift.
In recent legislation, both the GENIUS and CLARITY Acts, key pieces of legislation related to cryptocurrencies, were passed by the House of Representatives. The GENIUS Act, a law focused on payment stablecoins, specifically prevents stablecoin issuers from distributing yield or interest to holders. It has since been signed into law by President Donald Trump.
Looking Ahead
Earlier this year, the SEC issued a statement aimed at offering regulatory clarity for the rapidly-growing stablecoins sector before the proposal of the GENIUS Act in the Senate. The statement specified that certain types of stablecoins, termed ‘covered stablecoins’, are not considered securities.
The term ‘covered stablecoins’ refers to stablecoins pegged to the USD on a 1:1 basis and that meet specific reserve requirements. Notably, the statement did not cover whether yield-bearing stablecoins would be categorized as securities.
The total market cap of all stablecoins has surpassed $268 billion, with Tether’s USDT maintaining roughly 61% market share, as reported by DefiLlama. Today’s stablecoin market cap represents a substantial 63% increase from August 2024.
The evolution of regulations concerning stablecoins and other cryptocurrencies is likely to continue having significant effects on the digital asset space, both for businesses directly involved and those in the broader financial sector.
