Circle Urges SEC to Classify Payment Stablecoins as Cash and Remove 2% Haircut

Circle has called on the U.S. Securities and Exchange Commission (SEC) to classify eligible payment stablecoins as cash under its proposed rules for crypto fundraising. The company also wants the regulator to eliminate the 2% capital deduction, known as a haircut, currently applied to certain stablecoin holdings by broker-dealers.

In a blog post, the USDC issuer detailed its October 20 submission to the SEC, which coincided with the deadline for public comments on the proposal. While expressing support for the regulator's Regulation Crypto Assets initiative, Circle argued that the rules should provide clearer treatment for stablecoin-based payments and settlements.

Circle Calls for Alignment With the GENIUS Act

In its formal submission, Circle recommended aligning the SEC's proposed framework with the GENIUS Act, allowing only payment stablecoins that meet the legislation's requirements to serve as payment or settlement instruments.

The company also emphasized the need to distinguish between the digital asset being offered to investors and the stablecoin used to purchase it. According to Circle, accepting stablecoin payments should not automatically subject the stablecoin issuer to the fundraising company's regulatory obligations.

For qualifying dollar-pegged stablecoins that can be redeemed at a one-to-one ratio, Circle proposed valuing payments according to their equivalent dollar amount. It also wants regulators to apply consistent valuation rules when calculating offering limits and determining eligibility for exemptions available to securities offerings conducted for cash.

The company described its recommendations as part of an effort to establish a clear, technology-neutral regulatory environment for raising capital through blockchain networks.

SEC Proposal Introduces $5 Million and $75 Million Fundraising Exemptions

The SEC published its Regulation Crypto Assets proposal on August 18, outlining two potential exemptions from certain securities registration requirements.

The first would cover qualifying fundraising activities of up to $5 million over a four-year period. The second would allow eligible offerings of up to $75 million within 12 months.

Both exemptions would come with disclosure requirements. Companies using the larger exemption would also need to provide financial statements and ongoing reports. Meanwhile, existing protections against fraud and market manipulation would continue to apply.

Circle's recommendations seek to ensure that payment stablecoins can be used within these fundraising structures without creating unnecessary regulatory complications.

Circle Wants the SEC to Eliminate the 2% Stablecoin Haircut

Another central request concerns the capital requirements imposed on broker-dealers holding payment stablecoins.

In February, SEC staff issued guidance indicating that they would not object to broker-dealers applying a 2% haircut to qualifying proprietary stablecoin positions when calculating their net capital requirements.

A haircut represents a reduction in the value of an asset recognized for regulatory capital purposes. Under the guidance, the 2% adjustment applies to the market value of whichever is greater between a broker-dealer's long and short proprietary stablecoin positions.

SEC Commissioner Hester Peirce supported the approach in a statement published on February 19, arguing that stablecoins could help broker-dealers facilitate transactions involving tokenized securities and other digital assets.

Peirce also indicated that the SEC should consider changes to Rule 15c3-1 to better accommodate payment stablecoins within broker-dealer capital requirements.

Circle is now seeking to remove the deduction entirely, provided that stablecoins meet clearly defined safeguards. Its recommendations also cover appropriate accounting practices and the treatment of customer reserves.

The company wants these changes to advance alongside Regulation Crypto Assets, noting that recognition of stablecoins as cash under fundraising rules would not automatically determine their eligibility under broker-dealer customer reserve requirements.

Circle Seeks Regulatory Clarity for Blockchain Network Developers

Beyond stablecoin payments and capital requirements, Circle's submission addresses how the SEC should assess blockchain networks under the proposed framework.

The company wants the regulator to clarify that maintaining an established group of known validators after a network becomes operational should not, on its own, be considered an essential managerial effort. It also called for protections covering technical development roadmaps, allowing developers to continue upgrading functional networks without automatically triggering additional regulatory concerns.

Circle referred to its own Arc blockchain as an example of a permissionless network.

The company launched Arc's mainnet on September 16, featuring USDC as the network's transaction fee currency, institutional validators, and tokenized funds available from launch.

Circle said Arc supports Ethereum-compatible applications and enables settlement in less than one second. Its initial validator group included BlackRock, DTCC, Visa, Mastercard, and Standard Chartered.

Circle Also Challenges EU Stablecoin Reserve Requirements

Circle's regulatory proposals extend beyond the United States. On October 2, the company asked the European Commission to reconsider certain reserve requirements under the Markets in Crypto-Assets (MiCA) regulation.

Specifically, Circle proposed replacing fixed commercial bank deposit thresholds with liquidity-based requirements. Existing provisions require at least 30% of stablecoin reserves to be held in commercial bank deposits, with the threshold increasing to 60% for significant issuers.

The company has argued for a different approach to reserve management, focusing on liquidity rather than mandatory deposit proportions.

Stablecoin Regulation Could Shape Institutional Crypto Markets

Circle's requests highlight a broader regulatory issue: whether payment stablecoins should be treated primarily as cash equivalents or as a separate category of digital assets when applying financial rules.

Recognizing qualifying stablecoins as cash could simplify fundraising and settlement processes, while eliminating the capital haircut could reduce the regulatory cost of holding them for broker-dealers. However, these changes would depend on safeguards covering redemption, reserves, accounting, and operational risks.

The distinction between fundraising treatment and customer-reserve eligibility is particularly important. Even if the SEC accepts Circle's proposed classification under Regulation Crypto Assets, separate amendments may still be necessary to establish consistent treatment across broker-dealer capital and custody requirements.

Ultimately, the outcome could influence how easily financial institutions integrate stablecoins into securities markets and tokenized financial infrastructure. Circle's submission therefore goes beyond the treatment of USDC, raising questions about the regulatory status of payment stablecoins across multiple areas of the financial system.