Will Fiat-Backed Stablecoins Pass Legal Muster With the SEC and CFTC?
Jake Chervinsky's original article for www.coindesk.com reduced by 43%
In recent months, stablecoins - digital assets pegged to the value of fiat currencies like the U.S. dollar - have exploded in size and variety thanks to high-profile offerings from companies like Circle, Paxos and Gemini. Thus far, stablecoins have largely avoided public scrutiny and criticism from agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, which have focused their attention on the many issues arising out of the 2017 initial coin offering bubble instead.
Yet, as stablecoins see greater capital inflows and industry adoption, the SEC and CFTC will likely take a harder look at their compliance status. Unfortunately for stablecoin proponents, agencies like the SEC and CFTC are often quick to assert their jurisdiction over new financial innovations, even if their intervention may not serve the best interests of an emerging industry. Fiat-collateralized stablecoins are backed by actual fiat currencies held in reserve by the stablecoins' issuers, whereas crypto-collateralized stablecoins are backed by digital assets locked in smart contracts.
Given how these stablecoins are redeemed, the SEC might characterize them as "Demand notes," which are traditionally defined as two-party negotiable instruments obligating a debtor to pay the noteholder at any time upon request. For its part, the CFTC might take the position that stablecoins are "Swaps" under Commodity Exchange Act Section 1(a)(47)(A). Plus, the SEC and CFTC aren't the only regulators that may take an interest in stablecoins.
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