May 20, 2024

Circle: USDC Not a Security, Stance in Binance SEC Lawsuit

In a pivotal development within the cryptocurrency landscape, stablecoin issuer Circle has entered the fray, intervening in the Securities and Exchange Commission’s ongoing case against major crypto exchange Binance. Circle is steadfast in its belief that stablecoins, whose value is intrinsically tied to other assets, should not be subject to traditional financial trading regulations.

The SEC vs. Binance Saga

This legal saga began when regulators accused Binance, one of the world’s largest cryptocurrency exchanges, of multiple legal violations related to its facilitation of trades in various cryptocurrencies, including solana’s SOL, cardano’s ADA, and the Binance stablecoin BUSD. The SEC contended that these transactions constituted unregistered securities, sparking a significant legal battle in the crypto realm. Notably, Binance and its competitors, like Coinbase, are endeavoring to establish that cryptocurrencies should not fall under the purview of existing, stringent U.S. financial laws.

Circle’s Argument for Stablecoins

Circle’s intervention in this case centers on its assertion that assets like BUSD and its own USDC should not be classified as securities. A key facet of their argument is that users of these stablecoins do not anticipate or seek profit from their standalone purchases. Circle’s filing emphasized that “Payment stablecoins, on their own, do not have the essential features of an investment contract,” effectively positioning them outside the regulatory jurisdiction of the SEC. They further underpinned their stance with the argument that decades of legal precedent support the notion that an asset sale, devoid of any post-sale commitments or obligations by the seller, does not suffice to establish an investment contract.

The SEC’s Allegation and Binance’s Response

The SEC had contended that BUSD was marketed as an investment contract by Binance because it promised yields through reward programs. However, Binance, its U.S. subsidiary, and its founder Changpeng “CZ” Zhao have countered the SEC’s claims by filing a motion to dismiss the case. They argue that the regulator is attempting to exert authority over digital assets without explicit authorization from Congress.

This legal tussle not only shapes the future of stablecoins but also holds significant implications for the broader crypto industry, as it grapples with the regulatory landscape in the United States. Circle’s intervention underscores the growing importance of clear legal frameworks in the evolving world of digital currencies.