The U.S. Securities and Exchange Commission (SEC) has made significant moves in the crypto space, marking a shift in its regulatory stance. The agency has dropped its appeal in a case regarding the expansion of the dealer definition in securities law and approved the nation’s first yield-bearing stablecoin. These decisions highlight evolving regulatory approaches under new leadership and underscore the growing importance of stablecoins in the financial ecosystem.
SEC Drops Appeal in Dealer Rule Case
The SEC formally dismissed its appeal in a lawsuit filed by the Blockchain Association and the Crypto Freedom Alliance of Texas. The case challenged the SEC’s attempt to broaden the definition of securities dealers, which would have encompassed a wide range of digital asset operations. A Texas federal judge ruled that the SEC had “exceeded its statutory authority,” prompting the regulator to reconsider its position.
An SEC spokesperson stated that continuing the appeal posed risks to market stability, potentially reducing liquidity in the Treasury markets. The decision to drop the case reflects a shift towards more balanced oversight under acting Chairman Mark Uyeda, who has restructured the agency’s senior staff and legal strategies regarding digital assets. Uyeda is expected to continue these reforms until Trump’s permanent pick, Paul Atkins, is confirmed.
Kristin Smith, CEO of the Blockchain Association, welcomed the dismissal, emphasizing the importance of open dialogue between the industry and regulators. The abandoned rule was initially developed under former SEC Chairman Gary Gensler with the aim of regulating decentralized finance (DeFi) platforms and crypto traders more comprehensively.
Approval of Yield-Bearing Stablecoin YLDS
In a separate development, the SEC has approved the first U.S. yield-bearing stablecoin. Developed by Figure Markets, the YLDS stablecoin will be pegged to the U.S. dollar and offer a 3.85% yield to holders. This marks the first instance of a stablecoin being classified as a security under SEC regulations.
The approval came after Figure Markets filed an application in August 2023. CEO Mike Cagney described the stablecoin as a financial tool that combines interest-earning potential with transactional capabilities. The SEC’s approval process took over a year, reflecting the complexities of integrating crypto assets into traditional financial regulations.
YLDS will generate yield by investing reserves in U.S. Treasuries and commercial paper. Unlike traditional stablecoins, such as Tether’s USDT and Circle’s USDC, which generate revenue for issuers without providing returns to holders, YLDS aims to offer a direct benefit to users. Purchasers of YLDS will undergo a know-your-customer (KYC) process to comply with anti-money laundering regulations. Users who do not complete the KYC process can hold the token but will not receive interest payments.
Industry Response, Regulatory Shifts, and Legislative Developments
The introduction of YLDS could alter the competitive landscape of the stablecoin market. Tether, with a market capitalization exceeding $140 billion, and USDC, with $56 billion, dominate the space. Both have faced scrutiny over transparency and regulatory compliance, yet neither offers yield to users despite significant income from reserve assets.
Figure Markets’ offering aims to fill this gap, providing an alternative for users seeking passive income while retaining the price stability of a dollar-pegged asset. The SEC’s decision to classify YLDS as a security sets a precedent that could influence future stablecoin offerings. Other firms, including a venture led by Tether co-founder Reeve Collins, are exploring similar products.
These regulatory moves come amid broader efforts by U.S. policymakers to establish clearer guidelines for digital assets. The Trump administration recently issued an executive order supporting the development of dollar-backed stablecoins.
Concurrently, Congress is working on legislation to define supervisory frameworks for these assets. The STABLE Act, currently under consideration, proposes full reserve requirements and limits on issuer activities. However, experts argue that the draft leaves critical issues unaddressed.
Internationally, regions like the European Union, Hong Kong, and Singapore have advanced in developing comprehensive stablecoin regulations. The United States, while making progress, still lags in creating a unified framework. The SEC’s approval of YLDS could signal a more accommodating approach towards innovative financial products within the crypto sector.
Implications for Financial Markets
The SEC’s decisions reflect an evolving regulatory landscape that balances innovation with investor protection. Dropping the dealer rule appeal reduces regulatory uncertainty for crypto traders and DeFi platforms. Meanwhile, approving a yield-bearing stablecoin provides investors with new options for passive income while maintaining price stability.
The launch of YLDS is set to begin on Thursday, with Figure Markets positioning it as a competitor to existing stablecoins in payments, cross-border transfers, and collateralized lending. The product’s design, allowing 24/7 trading with no staking or lock-up periods, aligns with the growing demand for flexible financial solutions.
With regulatory clarity improving, the stablecoin market is poised for continued growth. Figure Markets’ success in securing SEC approval could encourage other firms to pursue similar offerings. While YLDS is the first of its kind in the U.S., the landscape remains competitive, with established players and new entrants seeking to capitalize on the sector’s expansion.
The SEC’s recent actions, including its paused enforcement case against Binance, indicate a broader reassessment of how crypto assets are regulated. As market dynamics evolve, the intersection of regulatory oversight and technological innovation will continue to shape the digital asset landscape.
