VaultoTM

Bucket 5 — Stablecoins (Covered Stablecoins)

Last researched: 2026-05-18

Definition

A Covered Stablecoin is a stablecoin that ([S11]):

  1. Is designed to maintain a stable value relative to USD on a one-for-one basis.
  2. Is redeemable for USD on a one-for-one basis.
  3. Is backed by low-risk, readily liquid assets with a value that meets or exceeds the redemption value in circulation.

Corp Fin's April 4, 2025 staff statement concluded the offer and sale of Covered Stablecoins does not involve the offer and sale of securities within §2(a)(1) of the Securities Act or §3(a)(10) of the Exchange Act ([S11]). Persons involved in creation and redemption do not need to register those transactions with the SEC or rely on an exemption.

The five marketing factors (Corp Fin's test)

Per [S11], Covered Stablecoins:

  1. Maintain a stable value relative to USD.
  2. Do not entitle holders to interest, profit, or other returns.
  3. Do not reflect investment or ownership interest in the issuer.
  4. Do not afford governance rights.
  5. Do not provide financial benefit or loss tied to any party's performance.

A token failing any of the five factors falls outside the "Covered Stablecoin" safe characterization — and the analysis defaults to Howey.

Explicitly not covered

  • Algorithmic stablecoins (uncollateralized or under-collateralized, peg maintained by mint/burn mechanics).
  • Yield-bearing stablecoins (pays interest, fee share, or staking-like returns to holders).
  • Non-USD-pegged stablecoins (EUR, JPY, gold, basket).
  • Stablecoins reflecting an ownership/profit interest in issuer.

These are not automatically securities — but they are not covered by the staff statement and must be analyzed individually under Howey.

Where yield-bearing stablecoins likely land

Yield-bearing dollar-pegged tokens are strong candidates for investment-contract treatment: pooled assets, common enterprise, expected return from issuer's investment management. Often best structured as a registered money-market fund or a Reg D / Reg A+ offering.

Legislative overlay

The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) and parallel House stablecoin bills passed Congress in 2025 (status verify in Session 4). The federal regime imposes prudential/banking-style requirements on payment stablecoin issuers — orthogonal to but consistent with the SEC's "not a security" view for Covered Stablecoins. Builders need to comply with the prudential regime and avoid features that pull the token out of the Covered Stablecoin lane and into a security.

Compliance checklist for builders issuing a stablecoin

  • One-for-one USD peg.
  • One-for-one USD redemption available to holders.
  • Reserves: short-duration USD instruments only (cash, T-bills, repo, money-market shares). Reserve > 100% of float.
  • No yield to holders. Period.
  • No governance token bundled with the stablecoin (or, if bundled, the governance token is analyzed separately).
  • No ownership/profit claim on issuer.
  • Public reserve attestations (industry standard; regulator expectation).
  • Comply with applicable federal payment-stablecoin statute (GENIUS Act / successor) and state money-transmitter laws.
  • AML/BSA program if issuer is an MSB.

Examples (illustrative)

  • USDC, USDP, GUSD — generally fit the Covered Stablecoin pattern, subject to fact-specific analysis.
  • Tether (USDT) — fact-specific; reserve composition and disclosure quality have been historically contested.
  • DAI — partially collateralized by other crypto; the question is reserve composition and one-for-one redemption.
  • Yield-bearing "stable" products (e.g., tokenized money-market fund interests) — securities; live in Bucket 4.

Red flags

  • "Earn 4% APY by holding our stablecoin" → yield → not a Covered Stablecoin → likely security.
  • "Stake your stablecoin for rewards" → same.
  • Reserves include long-duration assets, corporate bonds, or unsecured loans → fails the "low-risk, readily liquid" test.
  • Algorithmic peg maintenance (Terra/UST style) → not Covered.

Anti-fraud reminder

Even though Covered Stablecoins aren't securities, anti-fraud reaches misstatements about reserves, redemption, or peg integrity. The SEC and FTC are both possible enforcers; state AGs too.

Open questions

  • Tokenized money-market funds that look like stablecoins economically — still securities (BlackRock BUIDL, Franklin FOBXX, etc.).
  • Foreign-currency stablecoins — covered by no U.S. staff statement; analyze under Howey individually.
  • Hybrid models (partial collateral + algorithmic component) — high risk; assume not Covered.

Primary sources

[S6], [S8], [S11] — see 99-sources.md.