Circle Calls on SEC to Define Stablecoins as Cash and Eliminate Broker-Dealer Capital Haircut

Circle's Request to the SEC

Circle, the issuer of the USDC stablecoin, has formally requested the U.S. Securities and Exchange Commission (SEC) to amend its proposed rules related to crypto fundraising. In an influential blog post dated October 28, Circle advocated for the SEC to categorize qualifying payment stablecoins as cash, aiming to eliminate the current 2% capital haircut imposed on these digital assets for broker-dealers. The request coincides with a comment letter submitted on October 20, just before the official closing of the SEC’s consultation period.

Support for Regulation Crypto Assets

In its communication, Circle expressed strong support for Regulation Crypto Assets and called for clear guidelines surrounding stablecoin transactions, especially concerning their use in payment and settlement processes. They specifically proposed that only those payment stablecoins compliant with the GENIUS Act should be recognized as assets used for consideration or settlement in fundraising efforts, thereby segregating the offered tokens from the means of payment.

Circle contended that accepting stablecoins for payments should not in turn subject their issuers to the underwriting responsibilities of the fundraising entity. For fully collateralized dollar stablecoins that can be redeemed at a one-to-one rate, the firm recommended using the applicable dollar values for compliance and offering limitations. They also stressed the need for consistent treatment of payments made in stablecoins within the framework of offering limits and outlined provisions for cash-based securities.

SEC's Proposed Fundraising Exemptions

The SEC's proposal, revealed on August 18, would introduce two fundraising exemption pathways: one allowing up to $5 million in offerings over four years, while the other would permit a larger cap of $75 million within a single year. However, both options mandate corresponding disclosures as part of the process, with the larger exemption necessitating detailed financial statements and ongoing reports to ensure compliance with anti-fraud regulations.

Previously, on February 19, SEC staff noted their stance on payment stablecoins, permitting broker-dealers to impose a 2% haircut on eligible stablecoin positions when calculating their net capital. This approach was supported by SEC Commissioner Hester Peirce, who suggested a reevaluation of existing rules to better accommodate payment stablecoins as part of a broader strategy for dealing in tokenized securities.

Circle's Proposal and Recommendations

Circle's proposal to eliminate the haircut entirely was framed with the inclusion of necessary safeguards and the call for appropriate accounting measures. Their letter also recommended that any necessary reforms should align with Regulation Crypto Assets, clarifying that the proposed offering rules would not automatically dictate how stablecoins are treated in broker-dealers’ customer reserve accounts.

In addition to Circle's comments, the Hyperliquid Policy Center also put forth recommendations on October 19, advocating for five regulatory adjustments regarding various aspects of the crypto market, including secondary trading and developer protections. They sought clarification from the SEC on the role of onchain protocols in facilitating secondary token trading in compliance with exemptions.

Circle also urged the SEC to differentiate between maintaining a known validator set after a network goes live and exerting essential managerial control. Their blog also addressed the need for protections for technical roadmaps, allowing developers to continue to advance network functionality.

Advocacy in Europe

This month, Circle has made strides in Europe as well, advocating for the European Commission to adjust reserve requirements outlined in the Markets in Crypto-Assets Regulation (MiCA) by switching from deposit thresholds to liquidity criteria, questioning the demands for 30% of reserves to be stored in commercial bank deposits, which could increase to 60% for major issuers.