On Tuesday, the Securities and Exchange Commission filed a landmark lawsuit against crypto exchange Coinbase, alleging the company violated securities law by operating as a broker, national securities exchange, and clearing agency without registering with the agency.
The SEC’s case hinges in part on allegations that Coinbase sold 13 unregistered securities, including high-profile names like the Solana and Cardano blockchains. But one important name was not on the list: USDC.
The absence of the popular stablecoin created by Coinbase and U.S. crypto firm Circle is perhaps a surprise given the SEC’s decision to list the Binance stablecoin BUSD as a security in its lawsuit against the rival exchange on Monday. With a market cap of nearly $30 billion, USDC is a crucial cog of the U.S. crypto ecosystem and a source of significant revenue for Coinbase.
While the U.S. crypto industry is reeling from the agency’s decision to target the U.S. market-leading exchange, the omission of USDC still represents a breath of relief for industry participants, who speculated on Monday that the stablecoin could be targeted.
In his enforcement campaign against the crypto industry, SEC Chair Gary Gensler has argued that nearly every cryptocurrency is a security, with the exception of Bitcoin. The distinction carries serious ramifications in the U.S., with securities under the jurisdiction of the SEC and commodities under the jurisdiction of the Commodity Futures Trading Commission.
Gensler’s SEC has not created clear guidelines for which cryptocurrencies qualify as securities—or how a project can become sufficiently decentralized to become a commodity—but has instead chosen to call them out in individual lawsuits. In Monday’s action against Binance, the SEC listed several prominent cryptocurrencies as securities for the first time, including Solana and BNB.
In naming BUSD as a security, the SEC pointed to Binance offering a rewards program that promised interest payments to BUSD investors for holding BUSD, thus creating an expectation of profit.
While Coinbase offers a similar program with USDC, providing users with 2% returns by holding USDC on the exchange, Khurram Dara, a regulatory and policy principal at Bain Capital Crypto, argued that the two programs are different. He notes Binance is generating the rewards by investing the reserves, whereas Coinbase says it pays rewards out of its own funds, rather than lending them out.
USDC took a hit in March after Circle revealed that it had $3.3 billion of reserves stuck at Silicon Valley Bank, with the stablecoin losing its $1 peg overnight. Its market cap has decreased from $44 billion in early March to under $29 billion today as rival Tether soared to an all-time high.
As the House Financial Services Committee continues to weigh legislation that would advance stablecoin regulation in the U.S., Coinbase and Circle avoided a potential catastrophe with the SEC, with USDC exempt from enforcement actions for now.
Circle did not immediately respond to a request for comment.