Circle, the company behind the popular stablecoin USDC, has entered the legal battle between the U.S. Securities and Exchange Commission (SEC) and Binance. In a recent filing, Circle asserted that stablecoins like USDC do not constitute investment contracts and therefore should not fall under the SEC’s jurisdiction. The move comes as the SEC pursues a lawsuit against Binance and its CEO, Changpeng Zhao, for alleged violations of securities laws related to their affiliate BAM Trading.
Circle’s defense
In the ongoing legal saga between the SEC and Binance, Circle has now thrown its hat into the ring. Circle, the issuer of the USDC stablecoin, has taken a clear stance in defense of stablecoins designed for payments. In a filing submitted late on Thursday, Circle argued that these stablecoins lack the fundamental characteristics of investment contracts, which are typically subject to SEC oversight.
According to Circle’s position, stablecoins like USDC are primarily intended for facilitating payments and transactions, rather than serving as investment vehicles. As such, they do not inherently offer investors the prospect of profits, and users do not expect to gain financially from holding them. This key distinction, Circle contends, places stablecoins outside the regulatory scope of the SEC, which primarily focuses on securities and investment-related matters.
Circle’s intervention in the SEC’s case against Binance comes at a critical juncture in the ongoing legal battle. The SEC initiated legal proceedings against Binance and its CEO, Changpeng Zhao, back in June, alleging violations of U.S. securities laws. The core allegation was that Binance’s affiliate, BAM Trading, had been involved in the sale of unregistered securities, including the Binance Coin (BNB) and the stablecoin BUSD.
The addition of Circle’s perspective to the legal proceedings introduces a significant argument in favor of stablecoins’ classification as non-securities. This move may have broader implications for the cryptocurrency industry and how regulators treat stablecoins moving forward.
The impact of bank failures on stablecoin issuers
Circle’s recent legal involvement is not the first time the company has drawn attention to issues affecting the stablecoin industry. Just over a month ago, Dante Disparte, Circle’s Chief Strategy Officer, voiced concerns about the impact of bank failures in the United States on local stablecoin issuers.
Disparte highlighted that the fallout from bank failures had driven some investors towards “unsafe, opaque” cryptocurrencies in overseas markets. This raised questions about the stability and regulatory environment surrounding stablecoins issued by U.S. companies, such as USDC. Circle’s engagement in the SEC’s lawsuit against Binance may be seen as a proactive move to address some of these concerns and assert the legitimacy of USDC and similar stablecoins.
Circle’s defense of USDC as a non-security could have far-reaching implications for the cryptocurrency industry, especially for stablecoin issuers. If the court sides with Circle’s argument, it could establish a precedent that distinguishes stablecoins designed for payments from traditional securities.
This distinction might offer clarity to both issuers and users of stablecoins, potentially reducing regulatory uncertainty in the market. However, it could also open a debate about the regulatory oversight of stablecoins and whether they should fall under a different regulatory framework altogether.
Circle’s intervention in the SEC’s case against Binance marks a pivotal moment in the evolving landscape of cryptocurrency regulation. As the legal battle unfolds, the outcome could set a precedent for how stablecoins are categorized and regulated in the United States.
