Circle intervenes in the SEC vs. Binance lawsuit, arguing that stablecoins such as BUSD and USDC do not possess the essential features of a security.
In a startling development, Circle, the company behind the second-largest stablecoin by market cap USD Coin (USDC), has weighed in on the SEC v. Binance lawsuit.
Per a recent court filing, Circle argued that dollar-pegged crypto assets, popularly referred to as stablecoins, are not securities because users do not expect to make a profit by merely purchasing them.
“Payment stablecoins, on their own, do not have the essential features of an investment contract,” Circle said in its recent filing. “Decades of case law support the view that an asset sale — decoupled from any post-sale promises or obligations by the seller — is not sufficient to establish an investment contract.”
Circle’s argument comes three months after the SEC filed multiple charges against Binance.
Among the charges, the SEC alleged that Binance facilitated the sales of unregistered securities, including ADA, SOL, and BUSD – Binance stablecoin.
Stablecoins Don’t Satisfy “Expectation of Profit” Prong of Howey
However, Circle argued that crypto assets pegged to the dollar cannot be labeled as stablecoins, adding that they do not satisfy the “expectation of profit” element of the Howey test.
It is worth mentioning that the Howey test is a longstanding legal test in the US that helps to determine whether a transaction qualifies as an investment contract- a special type of security.
The SEC has relied on the Howey test in classifying crypto assets as investment contracts. According to the Supreme Court decision, for a transaction to qualify as an investment contract, it must possess four essential elements, such as:
- An investment of money
- In a common enterprise
- With expectations of profit
- To be derived from the efforts of others.
These four elements are expected to be satisfied for a transaction to qualify as an investment contract.
SEC v. Binance Still Ongoing
Meanwhile, the SEC v. Binance lawsuit is still ongoing. The top exchange filed a motion last week asking the court to dismiss the SEC lawsuit.
Binance cited the SEC v. Ripple ruling as a legal precedent to support its argument. It stated that the Ripple court found secondary market sales of XRP as blind bid/ask transactions. Thus, it ruled that these transactions do not constitute investment contracts.
Reacting, former SEC lawyer Marc Fagel said the Ripple ruling threatens the SEC’s program against crypto exchanges. Hence, the SEC is seeking an interlocutory appeal to review the court’s decision, Fagel added.