Claiming a stable coin is a security, when it is offered specifically NOT to offer any return, seems like a stretch...
1. arbitrage. It regularly happens that stable coins trade bellow 1 USD. Traders are buying them up to then redeem them at face value. Tether even made the mistake to advertise this "risk free" opportunity when USDT was trading around 0.98-0,99 USD.
2. I believe Paxos is sharing its bond profits together with Binance, in this case it could be seen as a security because Binance is earning money based on paxos effort.
>The U.S. Supreme Court's Howey case and subsequent case law have found that an "investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.[5] The so-called "Howey test" applies to any contract, scheme, or transaction, regardless of whether it has any of the characteristics of typical securities.
https://www.sec.gov/corpfin/framework-investment-contract-an...
There is no "reasonable expectation of profits" from a stable coin right? I should be able to buy it for 1USD and sell it for the same. No more. No less.
You hold it because you have a reasonable expectation of profits.
Just holding BUSD gains me nothing, it just sits there.
I've seen people argue that Eth is now a security IF you have 32ETH, because you can stake it (stake it yourself, not via a counterparties program) since it moved to Proof of Stake. But that's without involving a counterparty and their program and them defining the return etc, you can just do it.
But for BUSD, none of this applies: you cannot mine it, control is absolutely with Paxos, and is undiluted and the price is (in theory) fixed.
Securities are much broader and can even include things expected to yield a loss (such as negative yield-to-maturity bonds).
Either way, we are sort of stuck on the same core problem: What is a security?
The Howey test was made up by SCOTUS. It isn't set in stone. If someone can made a convincing case it's wrong, congress or the courts can change it.
The problem is, it is actually hard to come up with a definition that is general, simple and applies to stable coins but not to 1000s of thinks like bricks or cars or concert tickets.
That's how we ended up with Howey in the first place.
So we either have to admit stable coins aren't securities. Or we have to widen the definition a lot and suddenly the sec also have to regulate all sorts of markets they've never actually touched before.
Of course if you know such a definition, I am all ears.
I actually think cryptos state as psuedo regulated is the worst of all worlds: good actors and would be investors or users are put off by the chance of politically motivated regulator actions and rampant fraud. But that's a much wider position than "stable coins aren't securities because they don't offer a reasonable expectation of profit"...
If Bitcoin is going down, you sell and buy USDT instead, then two months later you trade the USDT for 20% more Bitcoin than what you started with... Measured in Bitcoin, you got a 20% return, and it was made possible by the asset-backed security in which you invested in the meantime.
Regular money market funds didn't pay anything when interest rates were negative. They are still securities.
I would argue that a crypto exchange is more like Schwab than Venmo, and that stablecoins provide a function similar to money market funds.
you arent accuring any yield
If the SEC is going down this road (and I don't think they actually are - this is more aimed at the bad behavior of Binance) it means they are seriously expanding the "reasonable expectation of profits" prong of the Howey test to include assets that on their own, have no expectation of profits simply because some users of the asset could potentially gain a profit in their use. The current makeup of the judiciary is really unlikely to play along.