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Circle Steps into Binance vs SEC Case — Asserts Stablecoins Aren’t Securities

Published September 29, 2023 9:02 AM
Teuta Franjkovic
Published September 29, 2023 9:02 AM

Key Takeaways

  • Circle entered the SEC and Binance legal dispute, arguing that stablecoins linked to other assets are not securities.
  • The SEC says Binance’s stablecoin BUSD was an unregistered security.
  • Circle said that an asset sale alone is insufficient to establish an investment contract.
  • Also, it should not be subject to SEC oversight.

In the Securities and Exchange Commission’s action against prominent cryptocurrency exchange Binance, stablecoin issuer Circle has intervened , stating that financial trading laws shouldn’t be extended to stablecoins whose value is correlated to other assets.

Regulators accused Binance of various legal infractions in June, for facilitating trades in cryptocurrencies including Solana’s SOL, Cardano’s ADA, and the Binance stablecoin BUSD, which the SEC claimed to be unregistered securities.

The world’s largest cryptocurrency exchange and competitors like Coinbase are attempting to claim that current onerous U.S. banking rules don’t cover cryptocurrency and, as a result, this has grown into one of the most significant cases in the industry at the moment.

Due in part to the fact that its users don’t anticipate any profit from standalone purchases, Circle now claims  that assets related to the dollar, such as BUSD and its own USDC, cannot be considered securities.

Stablecoins Lack Essential Investment Features for SEC Oversight

According to Circle’s submission, “payment stablecoins do not, on their own, have the essential features of an investment contract,” hence they are not subject to SEC regulation.

Decades of case law support the view that an asset sale alone does not establish an investment contract when it is separated from any promises or obligations by the seller following the sale.

Binance promoted BUSD as a yield-generating asset through reward programs, leading the SEC to argue that it resembled an investment contract. Recently, Binance and its U.S. division, along with founder Changpeng “CZ” Zhao, filed a motion to dismiss the SEC’s case, claiming that the agency is attempting to assert control over digital assets without congressional approval.

Circle, represented in part by Heath Tarbert, its chief legal officer and former chair of the Commodity Futures Trading Commission, submitted an amicus curiae brief. This brief supports Binance and addresses legal issues surrounding the case.

This announcement follows Circle’s chief strategy officer, Dante Disparte, cautioning  about U.S. bank failures affecting local stablecoin issuers and causing investors to turn to less regulated cryptocurrencies abroad.

“Candidly, should anyone anywhere be able to counterfeit US dollar using cryptographic methods or should there be a rule-set around competing with digital dollars on the internet where the safety and soundness and monetary policy of the United States is respected,” he stated.

Circle Sides With Coinbase

The co-founders of the $26 billion stablecoin USDC, Coinbase Global and Circle, are modifying the stablecoin’s governance due to perceived ‘growing regulatory clarity’ in the United States. However, it’s unlikely that such clarity will emerge for several years, and in the meantime, regulatory pressures are likely to intensify.

In August, Coinbase and Circle announced their decision to dissolve the consortium established to manage USDC, a stablecoin pegged to $1 and backed by reserves. Circle will assume sole responsibility for overseeing the token.

In a joint blog post , Coinbase CEO Brian Armstrong and Circle CEO Jeremy Allaire stated that “the growing regulatory clarity surrounding stablecoins in the U.S. and globally makes a separate governance body like Centre no longer necessary.”

They further mentioned that this new structure would enhance operational efficiency and governance.

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