Are stablecoins securities? Well, its not so simple, say lawyers
Feb, 12. 2023
By Brayden Lindrea
One lawyer said that while stablecoins are meant to be stable, buyers may possibly profit from a range of arbitrage, hedging, and staking opportunities.
Recently reported planned enforcement action against Paxos by the United States Securities and Exchange Commission (SEC) over Binance USD
BUSD ($1.00) has many in the community questioning how the regulator could see a stablecoin as a security.
Blockchain lawyers told Cointelegraph said that while the answer isn't black and white, there exists an argument for it if the stablecoin was issued out in the expectation of profits or are derivatives of securities.
A report from the Wall Street Journal on Feb. 12 revealed that the SEC is planning to sue Paxos Trust Company in relation to its issuance of Binance USD, a stablecoin it created in partnership with Binance in 2019. Within the notice, the SEC reportedly alleges that BUSD is an unregistered security.
Senior Lecturer Dr. Aaron Lane of RMIT’s Blockchain Innovation Hub told Cointelegraph that while the SEC may claim these stablecoins to be securities, that proposition hasn’t been conclusively tested by the U.S. Courts:
“With stablecoins, a particularly contentious issue will be whether the investment in the stablecoin led a person to an expectation of profit (the ‘third arm’ of the Howey test).”
“On a narrow view, the whole idea of the stablecoin is that it is stable. On a broader view, it could be argued that arbitrage, hedging, and staking opportunities provide an expectation of profit,” he said.
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