On April 4, 2025, World Liberty Financial announced the launch of a non-interest-bearing stablecoin named USD1, coinciding with a tumultuous period in the stock market that saw a record $6.4 trillion in value evaporate during a tariff-fueled selloff. This marked the beginning of what Wall Street labels a bear market.
In response, the US Securities and Exchange Commission (SEC) issued a timely notice that introduced a new regulatory framework aimed at fostering a more secure digital asset landscape. The SEC declared that ‘Covered Stablecoins’—tokens backed by physical fiat or high-liquidity assets and redeemable 1:1 with the US dollar—are classified as ‘non-securities.’
Moreover, individuals involved in minting (creating) and redeeming Covered Stablecoins will be exempt from standard reporting requirements. The SEC further clarified the types of assets acceptable for backing these stablecoins, including USD cash equivalents, demand deposits in banks or other financial institutions, US Treasury securities, and money market funds registered under Section 8(a) of the Investment Company Act of 1940. Notably, the list excludes precious metals and other crypto assets.
Importantly, issuers of Covered Stablecoins must avoid commingling asset reserves with their operational capital and are prohibited from offering token holders interest or yield opportunities. Additionally, the reserves cannot be used for investing or speculative trading, ensuring a foundational layer of stability in the evolving digital currency landscape.
It is critical to note that the SEC’s definition of Covered Stablecoins distinctly excludes algorithmic stablecoins, which attempt to maintain their US dollar peg through software or automated trading strategies. This leaves the regulatory landscape for algorithmic stablecoins, synthetic dollars, and yield-bearing fiat tokens somewhat nebulous.
Amid this regulatory backdrop, industry leaders in the US are advocating for changes that would allow stablecoin issuers to offer yield opportunities and interest to their holders. Within the last month, the SEC approved the first interest-bearing stablecoin, marking a significant evolution in the regulatory approach towards these digital assets. Tim Bailey, VP of Global Business and Operations at Red Date Technology, commented on the situation:
“We believe that there is market demand for government-regulated fiat-backed stablecoins and that this will help unleash the next wave of financial services innovation. Our UDPN Stablecoin Management System is ideal to help regulated stablecoin issuers build and operate these new services.”
Another firm, M^0, is currently developing a programmable stablecoin platform on the Solana blockchain, enabling developers to create feature-rich, branded digital dollars. Joao Reginatto, Chief Strategy Officer at M^0, explained the advantages of Solana’s ecosystem:
“Solana’s unmatched speed, scalability, and developer ecosystem make it a prime environment for stablecoin innovation. By bringing M^0’s platform to Solana, we’re empowering builders to create stablecoins that are not only interoperable, liquid, and tailored to their use cases, but that can also perform at any scale. This expansion is a key milestone in M^0’s vision to build the most comprehensive digital money technology stack for developers.”
In the midst of the stock market chaos, investors began to view stablecoins as safe haven assets. Surprisingly, during this tumultuous period, the US dollar lost ground against the Swiss franc, a traditional safe-haven currency, as concerns over a global recession grew following President Donald Trump’s announcement of extensive tariffs on trading partners.
This climate raised doubts about the US dollar’s longstanding role as the world’s reserve currency and raised anxieties over its relative stability. Additionally, against the odds, the price of gold fell instead of rising, indicating that investors were not flocking to gold as a means of wealth preservation.
Rather than seeking gold, investors turned to stablecoins, with Tether (USDT) leading the pack with a market capitalization of $144 billion. While the overall cryptocurrency market experienced an 18% decline, the stablecoin sector demonstrated resilience, achieving a total market cap that surpassed $230 billion, reflecting a 56% increase compared to the previous year. This outperformance highlights the growing demand for stablecoins as a safe haven asset during this bearish stock market phase, emphasizing the SEC’s recent favorable guidance on stablecoins.
William Quigley, co-founder of Wax and Tether, shared insights into investor behavior during market downturns:
“During market downturns, people might rush to buy Tether as a safe harbor, pushing its price slightly above a dollar. This behavior mirrors the ins and outs of conventional currency trading, where economic forces dictate value rather than a fixed peg.”
Importantly, Quigley clarified that Tether is not strictly pegged to the US dollar: “Tether has no peg. We do not maintain a peg. The term ‘pegged’ implies a strict one-to-one price ratio enforced at all times, a concept that Tether does not adhere to. Instead, Tether is redeemable for a dollar, meaning that it can be exchanged for a dollar, but the price can fluctuate in the market based on supply and demand dynamics.”
In conclusion, the intersection of regulatory clarity and market dynamics underscores the evolving role of stablecoins in an increasingly complex financial environment. As stablecoin issuers navigate new regulations and explore avenues for innovation, the demand for these digital assets as safe havens is likely to grow, further cementing their significance in the financial landscape.
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