Under new SEC guidelines, stablecoins that meet certain criteria are considered ”non-securities” and are exempt from transaction reporting requirements, the United States Securities and Exchange Commission said in a notice published April 4.

“Covered stablecoins,” as the SEC classifies them, are fully backed by physical fiat reserves or short-term, low-risk, highly liquid instruments and are redeemable at a 1:1 ratio with US dollars.

The definition precludes algorithmic stablecoins that maintain their US dollar peg using software or an automated trading strategy, leaving the regulatory status of algorithmic stablecoins, synthetic dollars, and yield-bearing fiat tokens uncertain.

Current stablecoin market overview. Source: RWA.XYZ

Industry leaders and executives are pushing for regulatory changes that would allow stablecoin issuers to share yield opportunities with stablecoin holders and offer onchain interest.

According to the new guidelines, covered stablecoin issuers cannot co-mingle asset reserves with operational capital or offer token holders interest, profit, or yield opportunities. Additionally, the covered stablecoin issuers must never use their reserves for investing or market speculation.

Related: Stablecoin supply surges $30B in Q1 as investors hedge against volatility

SEC’s definition of “covered stablecoin” consistent with broader US policy objectives

The SEC’s criteria for covered stablecoins are consistent with regulations stipulated in the GENIUS stablecoin bill, introduced by Senator Bill Hagerty, and the Stable Act of 2025, introduced by Representative French Hill.

The proposed legislation aims to protect the status of the US dollar as the global reserve currency through stablecoins that are backed by US dollars and government securities.

The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) of 2025 Act. Source: US Senate

Centralized stablecoin issuers back their tokens with US dollar deposits held in regulated financial institutions and short-term US Treasury Bills, driving demand for US dollars and US government debt.

Tether, the world’s largest stablecoin issuer, is now the seventh-largest holder of US Treasuries, beating out countries like Canada, Germany, and South Korea.

Speaking at the first White House Digital Asset Summit on March 7, US Treasury Secretary Scott Bessent said the US would use stablecoins to extend US dollar dominance.

Bessent said that regulating stablecoins was central to the administration’s digital asset strategy and a top regulatory priority during the current legislative session.

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