The US SEC has once again raised concerns about Circle’s stablecoin, USDC, as the company attempts to go public through an IPO. The regulatory documents reveal that the SEC is worried about the classification of USDC and other stablecoins as securities under US law. This is not a new issue, as similar concerns were expressed in 2021 when Circle tried to go public via a SPAC. The extended exchange between the SEC’s Division of Corporation Finance and Circle has been ongoing for nearly a year, highlighting the significance of the regulator’s concerns.
If USDC were to be classified as a security, Circle would face increased costs and regulatory requirements. This would undoubtedly impact the company’s business model and could potentially hinder its operations. The SEC has requested that Circle disclose the risks associated with USDC being classified as a security and the potential implications of being deemed an investment company. If Circle is designated as an investment company rather than an operating company, it would be subject to closer SEC oversight, including regular holdings reports and limits on its activities.
Circle’s previous attempt to go public through a SPAC merger was called off in 2022 due to similar concerns raised by the SEC. The company then filed confidential IPO paperwork in January in hopes of pursuing a traditional IPO route. However, the SEC’s persistent concerns have once again come to light, with detailed disclosures requested regarding the risks associated with USDC being classified as a security. This regulatory uncertainty surrounding USDC is causing delays and potential setbacks for Circle’s IPO process.
Legal experts have weighed in on the situation, pointing out the potential consequences for Circle if USDC is classified as a security. Todd Phillips, a law professor, emphasized that operating as a securities-registered entity would significantly increase operational costs for Circle. Xavier Kowalski, a securities attorney, highlighted the SEC’s cautious approach to registration reviews, aiming to avoid future enforcement actions. The prolonged concerns raised by the SEC have led to uncertainty surrounding Circle’s IPO approval and its future as a publicly traded company.
The uncertain regulatory status of Circle’s stablecoin, USDC, raises significant challenges for the company as it seeks to go public through an IPO. The SEC’s concerns about USDC being classified as a security and potential implications for Circle’s business model have created a cloud of uncertainty over the company’s future. Despite efforts to address these concerns, the outcome of Circle’s IPO remains uncertain as regulatory hurdles persist. Only time will tell whether Circle can overcome these challenges and successfully navigate the complex regulatory landscape surrounding stablecoins.
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