By Cheryl L. Isaac and Maxwell J. Black
Last week, Commodity Futures Trading Commission (“CFTC”) Chair Rostin Behnam asserted that fiat-based stablecoins (such as USD Coin (USDC), Tether (USDT), and Binance USD (BUSD), all of which are pegged to an underlying fiat currency) should be considered as commodities, subject to the CFTC’s enforcement jurisdiction.
This is directly in conflict with Securities and Exchange Commission (“SEC”) Chair Gary Gensler, who has stated on more than one occasion that nearly all digital assets, other than Bitcoin, are securities and fall under the SEC’s purview. The SEC has reportedly taken the view that BUSD, a USD-pegged stablecoin, is an unregistered security (and recently issued a notice to the BUSD issuer, Paxos, stating as such).
Chair Behnam made these statements on stablecoins as part of a hearing hosted by the Senate Agriculture Committee. He clarified his position in response to a line of questioning by Senator Kirsten Gillibrand. Though the regulation of digital assets was a substantial part of Behnam’s prepared statements, his claims about stablecoin regulation arose as part of a discussion surrounding Gillibrand’s proposed digital asset regulation bill.
In his testimony before the committee, Behnam averred that, “notwithstanding a regulatory framework around stablecoins they are going to be commodities, in [his] view.” According to Behnam, the CFTC had, “done the legal analysis,” that established stablecoins as commodities as part of the CFTC’s 2021 enforcement action against Tether.
In that enforcement action, the CFTC analyzed stablecoins as a commodity on the basis that stablecoins fell under the Commodity Exchange Act’s definition of a commodity as, “other goods and articles… and all services, rights and interests… in which contracts for future delivery are presently or in the future dealt in,” that could form the basis for derivatives contracts. While the legal justification of the CFTC’s jurisdiction in the 2021 enforcement action is thin, Behnam implied in the Senate Agriculture Committee hearing that the internal debates at the CFTC over extending its jurisdiction over any given financial product are substantial. He noted the agency has credibility and litigation risk and would not make a classification determination (as with ETH futures) unless the CFTC staff had serious legal defenses to support its arguments. That said, market participants are still waiting for a more fleshed-out understanding of the CFTC’s legal position.
Despite his testimony, Behnam left some wiggle room for himself and the agency. He recognized that his “colleagues might have a different opinion,” when it comes to regulating stablecoins as a commodity. He also noted that algorithmic stablecoins are not necessarily classified in the same manner as fiat-backed stablecoins.
Regardless of Behnam’s hedging, there is a strong potential that the precedential value of previous enforcement actions will bear his position out. For the moment, the jurisdictional “battle” for digital asset oversight between the regulators continues.