SEC Says Some Stablecoins Can Be Treated as Cash, but Experts Warn of Innovation Risk – Crypto News – Crypto News
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SEC Says Some Stablecoins Can Be Treated as Cash, but Experts Warn of Innovation Risk SEC Says Some Stablecoins Can Be Treated as Cash, but Experts Warn of Innovation Risk

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SEC Says Some Stablecoins Can Be Treated as Cash, but Experts Warn of Innovation Risk – Crypto News

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The recently reported staff guidance could let firms treat certain dollar-backed stablecoins like cash, deepening crypto’s integration with TradFi.

The U.S. Securities and Exchange Commission (SEC) issued guidance earlier this week stating that stablecoins may be classified as cash equivalents under accounting standards, Bloomberg reported. However, some experts argue the move could unintentionally stifle innovation.

According to the report from Bloomberg, the SEC’s updated staff guidance suggests that stablecoins backed by U.S. dollars and offering guaranteed redemption — meaning they can be redeemed 1:1 for USD — could be treated as “cash equivalents,” placing them in the same category as dollars or short-term Treasury bills on a company’s balance sheet.

That means companies could treat certain stablecoins, likely including Circle’s USDC, more like money, which could make it easier to use them in regular business. Moreover, the update could help pave the way for more traditional financial (TradFi) institutions to work with stablecoins, especially in areas like settlements and cross-border transactions.

“There’s no question that treating stablecoins as cash equivalents will be a major greenlight for DeFi to plug into the balance sheets of TradFi,” Doug Colkitt, initial contributor to Layer 1 blockchain Fogo, told The Defiant. “This move could finally make it viable for serious institutions to hold and use stablecoins without jumping through flaming hoops.”

Innovation in Yield

However, Colkitt explained that there’s a catch: “If the SEC’s definition of ‘guaranteed redemption’ is too narrow, it could kneecap the more innovative yield-bearing models that make DeFi attractive in the first place.”

He added that the digital asset space urgently needs programmable money that moves at internet speed and generates yield. “This guidance is a step forward, but whether it empowers real DeFi or just watered-down crypto remains to be seen,” Colkitt said.

Kony Kwong, the CEO and co-founder of GAIB, echoed Colkitt’s sentiment, noting that while this is positive overall, fiat-pegged tokens “don’t offer underlying productivity, as the yield earned from the backing assets ends completely on the side of the issuer.”

“While treating them as cash might help with the normalization of crypto within financial systems, in a capital-efficient world, synthetic dollars backed by real economic activity will stand out by providing interest to their users,” Kwong added.

Stablecoin Policy

This comes around a week after SEC Chairman Paul Atkins unveiled “Project Crypto,” a new initiative designed to bring TradFi infrastructure in the U.S. on-chain, marking a major policy shift from previous SEC leadership.

Last month, the House of Representatives passed both the GENIUS and CLARITY Acts, two key pieces of crypto legislation. Soon after, President Donald Trump signed the stablecoin-focused GENIUS Act into law. Notably, the GENIUS Act is legislation dedicated to so-called “payment stablecoins,” and specifically prohibits stablecoin issuers from paying out yield or interest to holders.

Meanwhile, in April, the SEC issued a statement aimed at providing regulatory clarity for the rapidly-evolving stablecoins sector, before GENIUS was even proposed in the Senate.

The April statement clarified that certain types of stablecoins, referred to as “Covered Stablecoins,” are not considered securities. Covered Stablecoins, the SEC said at the time, refer specifically to USD-pegged, 1:1 redeemable stablecoins that also meet particular reserve requirements. However, the statement explicitly did not cover whether or not yield-bearing stablecoins would be considered securities.

Currently, the total market cap of all stablecoins is over $268 billion, with Tether’s USDT retaining around a 61% market share, according to DefiLlama. Today’s stablecoin market cap marks a 63% increase since August 2024.

Total stablecoin market cap. Source: DefiLlama
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