Circle Distances Stablecoins From Securities Label in SEC’s Case Against Binance

Despite arguing that BUSD and USDC are not securities, Circle amicus brief affirms its impartiality in the ongoing legal dispute.

A court document filed Thursday showed that Circle, a stablecoin issuer, claimed that tokens pegged to a sovereign currency’s price, for instance, the United States dollar, are not securities. The amicus brief concerned the lawsuit by the Securities and Exchange Commission’s (SEC’s) case against Binance. Circle highlighted its position on stablecoins, though without supporting any side, in an amicus brief filed in district court in Washington, D.C.

SEC Lawsuit Against Binance Could Impact Stablecoins

CoinGecko shows that Circle is the USD Coin (USDC) issuer and is behind the second-biggest stablecoin by market capitalization estimated at $26B. Consequently, Circle asserted that the SEC’s lawsuit against Binance could impact stablecoins.

Binance was sued by the SEC in June, where, alongside Changpeng Zhao, its chief executive officer, it was accused of illicit activities in the United States while misappropriating client funds. BAM Management, the holding firm for Binance U.S., was also caught up in the enforcement action.

Claiming Binance provided unregistered securities to investors, the United States financial regulator highlighted Binance USD (BUSD). BUSD is a Binance-branded stablecoin previously offered by New York company Paxos. The token was among the numerous offerings the Securities and Exchange Commission challenged, including Binance Coin (BNB), Binance’s exchange token.

Circle Reacts to Inclusion of Stablecoins in SEC’s Enforcement Action

Via its filing, Circle notes the regulator’s enforcement initiative against Binance was the first time it asserted stablecoins are a security. Further, it claimed that likely impacts for BUSD and Binance could have surpassed practical and legal stakes.

Circle said that alone, Stablecoins lack an investment contract’s critical features. It cited the agency’s four-pointed approach for establishing if an offering requires oversight from the SEC. According to the regulator, ‘reasonable profit expectations’ are a critical element of its approach for establishing if something is a security. Due to the ability to redeem stablecoins at a stable value, Circle asserts that they fail to meet the standard alone.

Circle notes that the context regarding the offering of BUSD to investors is vital to SEC’s assertions. In its complaint, the agency challenges how BUSD was marketed as an offering that would make returns based on a yearly percentage yield.

Circle’s lawyers argued that in the complaint, the SEC does not assert that such stablecoins, on their own, are securities. Rather, it contends that Binance implemented other interventions that jointly converted BUSD sales into investment contracts.

Circle Revisits Stablecoin Use as Payment Method

Further, Circle claimed that stablecoins, mainly as a payment method, are different from financial instruments established to be securities while pointing out their utility. It gave an example of how people do not utilize a stock certificate to purchase pizza.

Some stablecoins effectively put a digital wrapper around the United States dollar, and the regulator’s opinion concerning if the process converts something into a security came up earlier this week. Ritchie Torres, a New York Representative, pressed Gary Gensler, SEC’s chair, on a regulatory theory concerning Pokémon cards illustrated by a digital token.

In March, Commission Futures Trading Commission Chair Rostin Behnam argued that stablecoins are commodities. However, Gensler has previously analyzed stablecoins. In 2022, the United State’s major financial watchdog compared stablecoins to ‘poker chips,’ primarily utilized to lock in possible profits by traders.

In 2021, Federal Reserve Chair Jerome Powell highlighted the need to regulate stablecoins ‘in comparable means’ to money market funds and bank deposits.

Circle’s perspective comes as legislators seek to possibly regulate stablecoins because Libra, Meta’s nonoperational project, perked legislators’ ears in 2019. Last week, Kristin Smith, Blockchain Association’s chief executive officer, revealed the existence of a pathway to pass legislation this year.

Reviewing USDC and Binance Journey in Stablecoins

Last September, Binance brushed off Circle’s namesake. The exchange claimed it would cease backing USDC on its platform and inevitably change clients’ token deposits to BUSD.

This move also impacted more stablecoins on Binance’s platform: TruesUSD (TUSD) and Pax Dollar (USDP). In addition to the changes, Binance claimed futures, spot trading, and margin lending for the stablecoins would also stop.

At that time, Binance claimed the intervention would enhance capital efficacy and liquidity for users. Nansen, a blockchain analytics company, showed that less than one month later, USDC worth $683M was on Binance’s exchange, in comparison to $20B BUSD and $5B Tether (USDT).

At the same time, funds withdrawal from Binance to the stablecoin of one’s choice was possible. Since then, Binance has also shifted to begin taking USDC deposits on Arbitrum and Optimism, Ethereum scaling solutions.

When writing, Binance was the top venue for USDC trading. CoinGecko showed that an estimated $380M USDC had been traded the previous day following numerous trading pairs.