Circle Joins the Fray: Defending Stablecoins' Security Status in Binance's SEC Case

Circle has entered the legal arena by intervening in the ongoing Securities and Exchange Commission (SEC) case against Binance.

Is this a case of fighting against a common enemy?

Circle's intervention centres around a crucial argument: it contends that financial trading laws should not be extended to cover stablecoins whose value is inherently tied to other assets.

Circle's filling stated:

“Payment stablecoins, on their own, do not have the essential features of an investment contract. Decades of case law support the view that an asset sale — decoupled from any post-sale promises or obligations by the seller — is not sufficient to establish an investment contract.”

The backdrop to this legal manoeuvre dates back to June when regulatory authorities levelled multiple legal violations against Binance, primarily related to its role in facilitating cryptocurrency trades, including tokens like solana's SOL, cardano's ADA, and the Binance stablecoin, BUSD.

The SEC's contention was that these transactions amounted to the sale of unregistered securities, marking this case as one of the most significant and closely watched developments in the cryptocurrency sphere.

Notably, this legal challenge is part of a broader debate, where major crypto exchanges, including Coinbase, endeavour to establish that cryptocurrencies should not be subjected to the prevailing stringent US financial regulations.

Circle's argument hinges on the assertion that assets like BUSD and its own USDC should not be classified as securities.

One key element of this argument is that users of these stablecoins do not anticipate deriving profits from standalone purchases.

The SEC had asserted that BUSD was essentially marketed as an investment contract by Binance due to its yield-related reward programmes.

Last week, Binance, its US counterpart, and its owner, Changpeng Zhao (CZ), submitted a motion to dismiss the SEC's case, contending that the regulator was attempting to exert control over digital assets without the necessary congressional authorisation.

Circle's involvement in this legal battle takes the form of an amicus curiae, or "friend of the court" brief, filed with the court.

This move underscores the significance of the case and features the input of Circle's Chief Legal Officer, Heath Tarbert, who has a notable background as the former chair of the Commodity Futures Trading Commission (CFTC), another federal regulatory body currently involved in a lawsuit against Binance.