Stablecoin issuer Circle has entered the legal dispute between the Securities and Exchange Commission (SEC) and major cryptocurrency exchange Binance. The SEC’s case, filed in June, alleges multiple legal violations by Binance related to its facilitation of cryptocurrency trades, including the Binance stablecoin BUSD, Solana’s SOL, and Cardano’s ADA. The SEC argues that these assets constitute unregistered securities, marking a significant legal battle in the cryptocurrency industry that may shape the regulatory landscape for digital assets in the United States.
Circle, in its amicus curiae brief, contends that stablecoins, whose value is tied to other assets, should not be subject to the same regulatory scrutiny as traditional securities. Specifically, Circle argues that stablecoins linked to the U.S. dollar, such as BUSD and its own USDC, should not be classified as securities. The key assertion is that users of these stablecoins do not expect to derive profit from standalone purchases, and therefore stablecoin do not qualify as investment contracts. Circle relies on legal precedents spanning decades to support the argument that the sale of an asset, without post-sale commitments or obligations by the seller, does not establish an investment contract.
In the filing, Circle’s Chief Legal Officer Heath Tarbert, a former chair of the Commodity Futures Trading Commission, emphasises that payment stablecoins lack the essential features of an investment contract. The argument is rooted in the idea that stablecoins, as a means of payment, do not involve the expectation of profit from the buyer, thereby falling outside the jurisdiction of the SEC.
The SEC’s case against Binance specifically targets BUSD, alleging that it was marketed as an investment contract due to Binance’s promotion of yield opportunities through reward programs. Binance, along with its U.S. subsidiary and CEO Changpeng “CZ” Zhao, has responded by filing for the dismissal of the SEC case. Their argument centres on the claim that the SEC is attempting to assert authority over digital assets without proper congressional authorization.
This legal clash reflects a broader trend in the cryptocurrency industry, where major players like Binance and Coinbase are actively challenging the application of existing U.S. financial laws to the crypto space. The outcome of this case could set a precedent for the treatment of digital assets under U.S. regulatory frameworks.
The significance of Circle’s involvement lies in its assertion that stablecoins should be treated differently from traditional securities, potentially influencing how regulators approach the regulation of stablecoins either on their own or as a type of cryptocurrency in the future. As this legal battle unfolds, it underscores the ongoing struggle to define the regulatory boundaries of the rapidly evolving cryptocurrency landscape.