The U.S. SEC continues its friendly approach to regulating cryptocurrencies by introducing a new stop-gap accounting guidance. This rule aims to provide accounting clarity to stablecoins, which have been a hot asset class since the passage of the GENIUS Act in July.
By issuing stop-gap accounting guidance, the SEC will allow certain fully backed, redeemable USD stablecoins to be classified as cash equivalents. This offers interim clarity while broader rules are developed. Regulations regarding crypto securities are still in development, but the SEC hopes the interim guidance will provide relief to traders and crypto players.
The New SEC Administration Ramps Up Efforts to Enact Crypto-Friendlier Laws
The SEC, under Chair Paul Atkins, has begun to rewrite restrictive policies that thrived under the past administration. These policies were known to stifle crypto and blockchain innovation, which would have made the United States trail countries like Singapore, Abu Dhabi, and Hong Kong, with progressive crypto rules. The old guidance law was seen as a barrier to traditional lenders from penetrating the crypto space.
Under the new stop-gap guidance, holders of certain USD-backed stablecoins pegged to another asset class could classify their assets as cash equivalents if they have approved redemption rights. According to the regulatory agency, the stablecoins qualify as cash if it has
- A stable 1:1 USD peg
- Its reserves are held in cash or U.S. Treasury instruments
- Auditable reserves without risky collateral.
- Full redemption rights
However, the SEC said this rule isn’t permanent. It hopes to provide interim clarity, while a more permanent rule is more developed through the recently proposed “Project Crypto” initiative.
What the Stop-gap Rule Means for Traditional Lenders
Traditional lenders, such as banks, found it difficult to enter the crypto space because of the previous stop-gap rule. It required an ambiguous accounting reporting that many lenders found outrageous. The improved rule allows financial institutions to hold compliant stablecoins on par with cash in a simplified liquidity ratio, potentially improving balance sheet liquidity.
Additionally, corporate lenders and Fintech firms gain new product opportunities by integrating stablecoins into payment workflows and lending services, knowing stablecoins are now treated as cash. With the removal of institutional barriers, traditional financial lenders can build stablecoin-based services with greater confidence.
For users or businesses, they can transact stablecoins without friction, as long as they are compliant with the SEC. Since stablecoins are treated as cash, businesses may avoid capital gains reporting on short-term holdings. Finally, the new stop-gap rule increases confidence in stablecoin adoption, knowing that this asset class is recognized as cash.
Stop-Gap Aligns with the GENIUS Act
The improved guidance rule aligns with the recently signed GENIUS Act, which standardized the issuance, trading, and reporting of stablecoins. Stop-gap reinforces stablecoins as a non-security instrument. Additionally, the guidance aligns with global crypto frameworks, such as MiCA, by acknowledging stablecoins as a legitimate payment asset.
However, the SEC clarifies that the rule applies only to fully-reserved, redemption-backed USD stablecoins. That means algorithmic or yield-bearing stablecoins are excluded. Firms must still comply with final legislation and ensure accurate audit reporting.
What’s Next for the SEC?
The stop-gap rule is a temporary rule, according to the SEC, as they await the finalization of “Project Crypto.” However, the rule provides immediate relief and clarity for traditional lenders and users. They have long been in a dilemma about stablecoins’ position as a payment tool.
By reclassifying fully-backed stablecoins as cash, the regulatory agency has lowered entry barriers. It’s a major leap towards integrating digital assets into mainstream finance, a feat President Donald Trump will hope to boast of before he leaves office.
