- The SEC has cautioned against FTX using stablecoins to repay creditors, raising concerns about legality under federal securities laws.
- The SEC’s court filing underscores its role in overseeing securities markets and evaluating FTX’s assets for liquidation and distribution.
- Galaxy Digital’s Alex Thorn and Coinbase’s Paul Grewal have criticized the SEC, accusing it of overreaching and lacking clarity in its regulatory stance on stablecoins.
The United States Securities and Exchange Commission (SEC) has recently issued a cautionary statement regarding the potential repayment of creditors by the now-bankrupt cryptocurrency exchange, FTX. The warning centers around FTX’s consideration of using stablecoins as a medium for returning funds to its creditors.
The SEC’s concerns were made public through a recent court filing, where the regulatory body expressed its reservations about the legality of such transactions under existing federal securities laws.
In the filing, the SEC acknowledged its ongoing role in overseeing U.S. securities markets, safeguarding investors, and upholding federal securities laws. The document highlighted that, as part of FTX’s bankruptcy proceedings, the exchange’s assets, including crypto asset securities, are under evaluation for liquidation and distribution to creditors.
Among the options being considered is the use of stablecoins, digital assets typically pegged to a stable reserve asset like the U.S. dollar, to repay creditors. However, the SEC has flagged this move, signaling that it may challenge such transactions if they proceed.
Industry Criticism of SEC’s Stance On FTX
Galaxy Digital’s head of research, Alex Thorn, criticized the SEC’s stance, interpreting it as an overreach of jurisdiction. Thorn pointed out that the SEC had previously dropped enforcement actions against other stablecoin issuers, like Paxos, and lost a motion to dismiss (MTD) against Binance’s BUSD in July.
He argued that the SEC’s ongoing reluctance to relinquish control over stablecoins represents an unwarranted extension of its regulatory powers. Thorn expressed frustration that the SEC continues to assert authority over what he describes as “genuine ‘number stay flat’ technologies,” which he believes do not warrant such scrutiny.
Similarly, Coinbase’s Chief Legal Officer, Paul Grewal, voiced his concerns on social media. Grewal emphasized that the SEC did not explicitly declare FTX’s proposed stablecoin transactions illegal. Instead, the agency merely reserved the right to challenge these transactions in the future.
Grewal criticized the SEC for its lack of clarity, suggesting that the agency’s vague threats are a disservice to investors, consumers, and the broader market. He concluded by calling for more transparency and better regulatory practices to ensure a fair and predictable market environment.
However, as the case unfolds, the SEC’s stance will likely play a significant role in shaping the future of how cryptocurrency assets, particularly stablecoins, are treated in legal and regulatory contexts.
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