Following World Liberty Financial’s announcement of the launch of a non-interest-bearing stablecoin USD1 on April 4, 2025, during a tariff-fueled stock market selloff that erased a record $6.4 trillion in value entering what Wall Street calls a bear market, the US Securities and Exchange Commission issued a notice. This notice paved the way for a more regulated and stable digital asset landscape and said that “Covered Stablecoins,” or tokens backed by physical fiat or high-liquidity assets and redeemable 1:1 with the US dollar, are “non-securities.” And persons involved in the process of “minting” (or creating) and redeeming Covered Stablecoins are exempted from reporting requirements.
The SEC notice gives examples of readily liquid assets that should back a Covered Stablecoin which include USD cash equivalents, demand deposits with banks or other financial institutions, US Treasury securities, and/or money market funds registered under Section 8(a) of the Investment Company Act of 1940, and do not include precious metals or other crypto assets. Covered Stablecoin issuers cannot co-mingle asset reserves with operational capital or offer token holders interest, profit, or yield opportunities. Additionally, the Covered Stablecoin issuers must never use their reserves for investing or market speculation.
Covered Stablecoins don’t include algorithmic stablecoins that maintain their US dollar peg using software or an automated trading strategy, leaving the regulatory status of algorithmic stablecoins, synthetic dollars, and yield-bearing fiat tokens uncertain.
In the US, industry leaders are pushing for regulatory changes that would allow stablecoin issuers to share yield opportunities with stablecoin holders and offer interest. The first such interest-bearing stablecoin was approved by the SEC and registered as a security in the United States a month ago. As Tim Bailey, VP of Global Business and Operations, Red Date Technology, said:
“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 company, M^0, is building a programmable stablecoin platform with Solana, enabling builders to launch feature-rich, branded digital dollars on one of the most scalable blockchains in the industry by offering digital-dollar building blocks, the best risk-free yield proxy on-chain without the need for cumbersome agreements with programmable yield distribution. As Joao Reginatto, Chief Strategy Officer at M^0, explained:
“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.”