Stablecoin Market Risks Are Being Downplayed, SEC Official Claims

Commissioner Caroline Crenshaw recently criticized the SEC’s position on dollar-pegged crypto assets, suggesting that the agency’s assessment falls short of acknowledging the real threats within the stablecoin market.

Crenshaw points out that retail investors typically acquire stablecoins through intermediaries, but these intermediaries have no legal duty to redeem the stablecoins on behalf of the holders. This lack of obligation could leave investors vulnerable if an intermediary fails or refuses to honor redemption. In her view, the SEC has not adequately addressed the risks posed by these unregistered trading platforms acting as the primary distributors of stablecoins.

One of Crenshaw’s key arguments is that stablecoin holders do not have the direct redemption rights that the SEC suggests. Instead of accessing the issuer’s reserve directly, retail users must rely on intermediaries, who pay out based on market value rather than guaranteeing a one-to-one dollar redemption. This contradicts the SEC’s claim that issuers are equipped to fulfill redemption obligations with sufficient reserves.

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Crenshaw stresses that the involvement of intermediaries significantly reduces the practical value of issuer-backed reserves as a risk mitigation measure. Since intermediaries are not required to redeem stablecoins at face value, retail holders may only receive the prevailing market price, not the fixed $1 that issuers claim to support.

The commissioner’s critique comes shortly after the SEC declared that non-yield-bearing stablecoins do not fall under its regulatory scope as securities. However, the agency has yet to clarify its stance on other types of stablecoins, including those that generate yield, are algorithmically backed, or are tied to non-USD assets. Crenshaw’s comments highlight a growing debate within the SEC about how to manage the evolving stablecoin landscape while safeguarding retail investors.

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