In a recent development, renowned stablecoin issuer Circle has intervened in the US Securities and Exchange Commission’s (SEC) case against Binance, arguing that stablecoins should not be classified as securities.
Circle Defends Binance via Stablecoins
The crux of Circle’s argument is that financial trading laws should not be extended to stablecoins whose value is intrinsically tied to other assets. This intervention comes as the SEC charges Binance with multiple legal violations related to the trading of cryptocurrencies, including Solana’s SOL, Cardano’s ADA, and the Binance stablecoin BUSD, which the SEC contends are unregistered securities.
Circle highlighted in a recent filing that payment stablecoins, such as BUSD and USDC, should not be subjected to SEC jurisdiction as they do not possess the essential features of an investment contract. In essence, Circle argues that the nature of these stablecoins, primarily designed for facilitating transactions and maintaining a stable value, sets them apart from traditional securities.
Central to Circle’s argument is the idea that users of payment stablecoins are not purchasing them with the expectation of making a profit. Instead, these digital assets are primarily used as a means of payment, similar to digital representations of the U.S. dollar.
In contrast to traditional securities, which are purchased with the anticipation of future returns, stablecoin transactions are inherently different. According to Circle’s filing, “an asset sale – decoupled from any post-sale promises or obligations by the seller – is not sufficient to establish an investment contract.”
The SEC’s Allegations and Binance’s Response
The SEC’s case against Binance centers on its claim that BUSD was sold as an investment contract, primarily because Binance marketed it as offering yield through reward programs. This contention raises questions about whether the mere association of stablecoins with yield-generating activities automatically classifies them as securities.
Binance, along with its US subsidiary and owner Changpeng Zhao, has vigorously denied the SEC’s charges and has filed a motion to dismiss the lawsuit. Binance claims that the agency is attempting to gain control of digital assets without necessary congressional permission.
This legal battle between Binance and the SEC is among the most significant cases in the crypto space, with ramifications for rival exchanges like Coinbase Global Inc (NASDAQ: COIN), which has also maintained that crypto is not covered by existing tough US financial regulations.
Circle’s intervention in the form of an amicus curiae or friend of the court brief adds significant weight to the debate. Circle’s Chief Legal Officer, Heath Tarbert, who previously served as the chair of the Commodity Futures Trading Commission (CFTC), another federal regulator currently suing Binance, is spearheading this effort.
Overall, Circle’s intervention in the SEC’s case adds an important perspective to the ongoing debate over cryptocurrency regulation. It underscores the need for precise and well-defined regulatory boundaries in the crypto space, particularly concerning stablecoins.