SEC’s Valerie Szczepanik: Many Stablecoins Currently “Might Be Violating Various Securities Laws”

SEC’s Valerie Szczepanik Says There Are Many Stablecoins In The Market Currently That “Might Be Violating Various Securities laws”

During her appearance at the ongoing SXSW conference in Austin, the SEC’s Senior Advisor for Digital Assets ‘Valerie Szczepanik’ went on record to state that there currently existed a number of stablecoin offerings that could potentially be “in direct conflict with some of today’s existing securities laws.”

Over the course of the day-long event, Szczepanik went on to systematically dissect stablecoins — eventually reducing them into three core categories.

1. Stablecoins that are directly linked to some physical asset such as gold, real estate etc.
2. Stablecoins that are tied to a fiat currency (that is maintained by a government body).
3. The third category is the one that is problematic according to Szczepanik. These are stablecoins that make use of “self-styled” pricing mechanisms to control their values.

   On the subject, she was quoted as saying:

“I’ve seen stablecoins that purport to control price through some kind of pricing mechanism, whether it’s tied to the issuance, creation or redemption of another type of digital asset tied to it, or whether it is controlled through supply and demand in some way to keep the price within a certain band.”

She then went on to add that it is exactly these kinds of offerings (where a centralized authority controls price fluctuations over time) that risked violating some of the US’ existing securities laws.

More On The Matter

When asked about how the SEC plans on tackling the above-mentioned problem, Szczepanik said that each project will be treated as per the facts and circumstances associated with it.

“You’re talking about folks who are buying into that ecosystem or are buying this coin with the expectation that somebody else is going to be holding a profit or guaranteeing a profit or holding the price at a certain level. Again, that could raise issues under securities laws.”

It is worth remembering that the legal status of stablecoins has been a question of much interest since mid-2017. This is because there is a special class of stablecoins (referred to as “algorithmic stablecoins”) that are not supported by any collateral.

In regards to the issue, many of our readers might recall that just last December, a stablecoin project called ‘Basis’ shut down its operations (after having raised a whopping $135 Million) — since it was being widely reported that the SEC would declare the firm’s offering to be a ‘security’.

Lastly, Szczepanik also made it clear that the SEC is not worried about what “label” blockchain firms slap on their tokens in order to circumvent the law. According to her, each new token will be scrutinized by the SEC in linear conjunction with the guidelines that have been established by law agencies and other US finance authorities.

Final Take

In rounding off her interview, Szczepanik signed off by saying:

“Not to sound cliche, but we’d much rather people come to us and ask for [permission]—or come talk to us before they do something, rather than doing something and then coming in and asking for forgiveness.”