Full Text of U.S. SEC Stablecoin Regulation: What Kind of Stablecoin is Not a Security?

By: blockbeats|2025/04/16 14:15:03

Original Title: Statement on Stablecoins

Original Author: U.S. Securities and Exchange Commission Corporate Finance Division

Original Translator: Aki Chen, Blockchains Are Us

To further clarify the applicability of U.S. federal securities laws in the cryptocurrency field [1], the Corporate Finance Division has issued relevant guidance regarding a specific type of cryptocurrency (commonly referred to as "stablecoins") [2]. This statement is only applicable to stablecoins that meet the following criteria:

Designed with a mechanism to ensure a 1:1 peg to the U.S. Dollar (USD), supporting redemption of U.S. Dollars on a 1:1 basis (i.e., 1 stablecoin is redeemable for 1 U.S. Dollar), backed by low-risk and highly liquid reserve assets, with the U.S. Dollar value always covering the redemption demand of circulating stablecoins.

As elaborated later in this document, we refer to such stablecoins covered by this statement as "Compliant Stablecoins."

Stablecoin Overview

A stablecoin is a type of cryptocurrency designed to maintain its value relative to a reference asset (such as the U.S. Dollar or another fiat currency, gold or other commodities, or a basket of assets). Generally, stablecoins are intended to track the value of the reference asset at a 1:1 ratio. Stablecoins may employ different mechanisms to maintain their value stability: in some cases, stablecoins are backed by reserve assets, using assets held in reserves to ensure a 1:1 exchange with the reference asset; in other cases, stablecoins maintain stability through mechanisms outside of reserves, such as relying on algorithms to adjust the stablecoin's supply based on market demand [3].

Given the different stabilizing mechanisms and reserve assets (where applicable), stablecoins face significant differences in risk. Stablecoin issuers typically offer and sell stablecoins at a price equivalent to the reference asset (1:1 ratio). For example, when the reference asset is the U.S. Dollar, the issuer would sell 1 stablecoin at a price of 1 U.S. Dollar; if trading in fractional amounts, the value would still correspond at a 1:1 ratio (e.g., 0.5 stablecoins corresponding to 0.50 U.S. Dollars). Upon redemption by users, issuers usually utilize reserve assets to exchange stablecoins back to the reference asset at a 1:1 ratio.

1) Corporate Finance Division's Position on Compliant Stablecoins [4]

Based on the operational model and applicable conditions outlined in this statement, the Corporate Finance Division believes that the issuance and sale of Compliant Stablecoins do not constitute acts of issuing or selling securities as defined by Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Securities Exchange Act of 1934 [5].

Therefore, relevant parties participating in the issuance (i.e., creation) and redemption of compliant stablecoins do not need to comply with the registration requirements of the Securities Act with the U.S. Securities and Exchange Commission (SEC), nor do they need to rely on any registration exemptions under the Securities Act.

2) Core Features of Compliant Stablecoins

Compliant Stablecoins are a type of cryptocurrency asset designed to serve as a means of payment settlement, fund transfer, or store of value. These stablecoins are designed to maintain a 1:1 fixed anchoring relationship with the U.S. Dollar (USD) by holding sufficient USD reserves and other assets deemed low-risk and highly liquid to ensure the issuer can meet redemption obligations on demand.[6]

These backing assets denominated in USD are held in reserve accounts, with their total value equal to or exceeding the redemption value of circulating compliant stablecoins. The issuer of compliant stablecoins can mint and redeem them at a 1:1 ratio with the USD, without any quantity restrictions. In other words, the issuer is always prepared to mint one stablecoin for $1 (or an equivalent proportion) and redeem one stablecoin for $1 (or an equivalent proportion), with no limits on the minting and redemption amounts.

Through this fixed-price, unlimited minting and redemption mechanism, the market price of compliant stablecoins can maintain a stable anchoring relationship with the USD.

Compliant Stablecoins are minted by the issuer and issued and sold by the issuer or designated intermediaries. In some cases, any holder can directly mint and redeem stablecoins with the issuer at a 1:1 ratio to the USD. In other cases, only designated intermediaries are eligible to directly mint and redeem stablecoins with the issuer at the same 1:1 ratio.

In the latter scenario, non-designated intermediary holders cannot directly mint or redeem stablecoins with the issuer; their sole means of acquiring or disposing of stablecoins is through secondary market transactions, which may include transactions with designated intermediaries.

The trading price of compliant stablecoins on the secondary market may deviate from their redemption price. However, the "fixed-price, unlimited minting and redemption" mechanism provides arbitrage opportunities for designated intermediaries or other eligible holders who can directly mint and redeem with the issuer, helping to keep the market price close to the redemption price.

For example, when the market price is higher than the redemption price, these parties can mint stablecoins directly from the issuer at a 1:1 ratio and sell them on the market. With an increase in supply, the market price usually decreases, approaching the redemption price. Conversely, when the market price is lower than the redemption price, these parties buy stablecoins on the secondary market and redeem them directly with the issuer. As the circulating supply decreases, the price typically rises, once again approaching the redemption price.

This Statement Covers Compliance Stablecoin Market Activities [7]

Compliance Stablecoins are positioned in the market solely for commercial purposes, specifically as a means of payment, a tool for fund transfers, or a store of value, and not as an investment product. Market participants typically emphasize that Compliance Stablecoins are designed to provide stable, fast, reliable, and easy-to-use payment, currency transfer, and value storage mechanisms. In addition, such stablecoins are often likened to a "digital dollar."

Market participants may also explain that Compliance Stablecoins have the following characteristics:

Designed to be pegged to or equal in value to the US dollar (USD) (e.g., one Compliance Stablecoin corresponds to one US dollar).

Do not entitle holders to any interest, profit, or other income rights.

Do not represent an investment in or any ownership interest in the issuer or any third party.

Do not grant holders any governance rights over the issuer or the stablecoin itself.

Holders' economic interests or losses are not affected by the financial performance of the issuer or any third party.

As described below, we believe that stablecoins introduced in the following manner demonstrate that Compliance Stablecoins are not issued or sold as securities.

1) Reserve Account

The issuer of Compliance Stablecoins will use the proceeds from their sale to purchase specific assets, which are held in a centralized asset pool called a "Reserve." The assets held in the reserve include US dollars (USD) or other assets considered low risk and highly liquid to ensure the issuer can meet all redemption requests on demand. [8]

The reserve assets at all times support the circulating amount of Compliance Stablecoins at a ratio of not less than 1:1. Reserve assets are only used to fulfill redemption requests, and while the issuer may earn income from them (e.g., interest), the following applies:

Reserve assets can be sold during the redemption process but are always managed separately from the issuer's or any third party's other assets and may not be commingled.

Reserve assets may not be used for the issuer's operations or general business purposes.

Reserve assets may not be lent, pledged, or rehypothecated.

The custody of reserve assets should ensure they do not become subject to third-party claims.

Under the aforementioned arrangement, the issuer may not use reserve assets for trading, speculation, or discretion-driven investment operations. While the issuer can decide how to use the income generated from the reserve assets (e.g., interest), such income is not distributed to Compliance Stablecoin holders.

In some cases, an issuer may publish a "Proof of Reserves" as an auditing or verification mechanism to demonstrate that its issued stablecoin is backed by sufficient reserve assets.

2) Legal Qualitative Analysis

Both Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act define "security" by listing various financial instruments, including "stock," "note," and "evidence of indebtedness." As compliant stablecoins exhibit characteristics of notes or other debt instruments in certain aspects, we analyze them based on the standard established by the U.S. Supreme Court in Reves v. Ernst & Young. [9] As described below, we will also refer to the "Howey Test" established in the U.S. Securities and Exchange Commission v. W.J. Howey Co. case for supplementary analysis. [10]

Reves Case Analysis

In the Reves case, the U.S. Supreme Court found that since "notes" are one of the instruments listed in the definitions of "security" in the Securities Act and the Exchange Act, all notes should generally be presumed to constitute securities. [11] However, this presumption can be rebutted by demonstrating a high degree of similarity between the note in question and several types of notes issued in typical commercial transactions, thus appropriately excluding it from the definition of "security." [12] This so-called "family resemblance test" includes the following four factors:

Analysis of the true intent of the transaction parties: Examining the motives that prompt a rational seller and buyer to engage in the transaction.

Circulation of the security: Examining whether the financial instrument is used in transactions "involving common trading for speculation or investment."

Reasonable expectations of the investing public: Examining whether ordinary investors would reasonably expect the note to be a security regulated by federal securities laws.

Risk reduction features: Examining whether the note has certain characteristics (e.g., subject to other regulatory mechanisms) that significantly reduce its risk, thereby decreasing the necessity of applying the Securities Act and the Exchange Act. [13]

Federal courts take a balanced, comprehensive approach when applying the Reves test, and no single factor should be considered in isolation to determine whether a note constitutes a security. [14]

1) Analysis of the True Intent of the Transaction Parties

If the seller's purpose is to raise funds for its overall operations or significant investments, while the buyer is primarily focused on the expected profits from the note, the note is likely to be considered a security. [15] Conversely, if the purpose of exchanging the note is to serve an actual business scenario or consumer use, the note is unlikely to be classified as a security.

As mentioned earlier, the buyer of a compliant stablecoin purchases it due to its stability and the need for it as a means of payment or store of value in commercial transactions. Since a compliant stablecoin neither pays nor promises interest, nor grants the holder any payment or asset rights other than the 1:1 USD redemption, the buyer does not purchase and hold the stablecoin for profit expectations. The issuer of a compliant stablecoin uses the sale proceeds to replenish the reserve account. Although the issuer may utilize the income generated from the reserve to support its business operations, the issuance and purchase are primarily for commercial purposes rather than investment purposes.

2) Circulation of Securities

In the Reves case, the U.S. Supreme Court pointed out that this factor examines whether there are "widespread sales to the general public for investment or speculative purposes." When a financial instrument is "sold and distributed to the general public," this factor is satisfied, which compliant stablecoins adhere to.

However, the price stability design of a compliant stablecoin helps ensure that its secondary market trading is not for speculative or investment purposes. Although arbitrage opportunities may arise in the secondary market when there is a deviation between the market price and the redemption price, such arbitrage opportunities are effectively limited as the issuer can redeem on demand and mint and redeem on a 1:1 basis with the U.S. dollar at any time.

3) Reasonable Expectations of the Investing Public

This factor aims to examine the marketing and sales approach of the relevant financial instrument. In the Reves case, the court explicitly stated: "The advertising characterized the note as an 'investment'...and there were no countervailing factors sufficient to create a genuine issue of fact as to that characterization."

As mentioned earlier, compliant stablecoins are not promoted as investment instruments. Instead, they are marketed as a stable, fast, reliable, and easily accessible means of transferring value or storing value, without emphasizing potential profits or investment returns. Therefore, from the perspective of the investing public, it would not be reasonable to expect such stablecoins to be regulated as investment instruments under securities laws.

4) Risk-Reducing Features

In the Reves precedent, this factor focuses on risk-mitigating features such as whether the note has collateral backing, insurance coverage, or is subject to other regulatory mechanisms, thereby "significantly diminish[ing] the risk of the financial instrument to the point where the application of securities laws is no longer necessary." The issuer of an asset-backed stablecoin maintains a reserve mechanism designed to fully fulfill redemption obligations. This reserve consists of USD and/or other assets considered low risk and highly liquid to ensure the issuer can meet all redemption requests at any time.

Therefore, considering all relevant factors, this department believes that based on the Reves Test, Asset-Backed Stablecoins do not constitute securities, for the following reasons:

· The issuer uses the proceeds from the sale to establish a reserve account, and the buyer's motivation is not primarily based on the expectation of profit;

· The distribution of Asset-Backed Stablecoins does not encourage speculation or investment trading behavior;

· A reasonable buyer would not expect this type of stablecoin to be an investment vehicle;

· The ongoing provision of a sufficient reserve that can be readily used to fulfill redemption obligations constitutes a substantive risk mitigation mechanism.

In summary, the issuance and sale of Asset-Backed Stablecoins are intended for commercial or consumer use rather than for investment purposes.

Howey Test Analysis

If Asset-Backed Stablecoins are not considered notes or other debt instruments and are not explicitly listed as other financial instruments under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, then a further analysis of the issuance and sale activities must be conducted under the "investment contract" standard, known as the Howey Test. This test, centered on the "economic realities," is used to assess whether arrangements or instruments not within the scope of the above statutes constitute securities.^[22]

When analyzing the economic substance of a transaction, the Howey Test focuses on whether there is an investment of money in a common enterprise and whether the investor expects profits predominantly from the efforts of others (usually the project's efforts).^[23] Since the Howey case, the Supreme Court has distinguished between an investor's motive (attracted by the "profit-making prospect" [24]) and a consumer's motive (for the "use or consumption of the purchased item").^[25] Federal securities laws apply only to transactions involving investment activities and do not apply to consumer transactions.^[26]

As mentioned earlier, buyers of Asset-Backed Stablecoins do not purchase such stablecoins based on the profit expectation from the entrepreneurial or managerial efforts of others. This instrument is not marketed in the market as an investment product nor emphasizes any profit potential.^[27] Conversely, the buyers acquire Asset-Backed Stablecoins with the motivation to use them as a "digital dollar" for payments or store of value, similar to scenarios involving the use of dollars.

Therefore, this department believes that the issuance and sale of Asset-Backed Stablecoins do not constitute an investment contract and are not securities under the securities laws.

For further information, please submit an online request form through the following website to contact the Chief Legal Advisor's Office of this department: https://www.sec.gov/forms/corp_fin_interpretive

[1] In this statement, "crypto asset" refers to an asset generated, issued, and/or transferred through a blockchain or similar distributed ledger technology network, including but not limited to assets referred to as "tokens," "digital assets," "virtual currencies," and "coins," relying on cryptographic protocols to achieve its functionality. Additionally, the "issuer" referred to in this statement includes both the issuer itself and its affiliates.

[2] This statement represents the views of the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Division"). This statement is not a rule, regulation, guidance, or official statement of the U.S. Securities and Exchange Commission, and the Commission has neither approved nor disapproved its content. Like all staff statements, this statement has no legal force: it does not change or amend existing law, nor does it impose new legal obligations on any entity.

[3] Unlike reserve asset-backed stablecoins, algorithmic stablecoins typically rely on specific algorithmic mechanisms to maintain price stability rather than being backed by real-world assets.

[4] The Division only expresses views on Compliance Stablecoins as described in this statement. For other types of stablecoins, this statement does not provide an assessment, including but not limited to the following categories:

Stablecoins designed to peg the value to a non-U.S. dollar reference asset (such as non-U.S. fiat currency, commodities, other crypto assets, etc.). Stablecoins using alternative stability mechanisms (such as algorithmic mechanisms) to achieve value pegging. Stablecoins pegged to the U.S. dollar value but not redeemable for U.S. dollars. And income-generating stablecoins (referred to as "yield-bearing stablecoins"), including stablecoins that provide holders with income, interest, or other passive revenue, whether in the form of regular payments, reward mechanisms, or through a "re-basing" mechanism that automatically adjusts the stablecoin's total supply.

[5] The Division's views are not conclusive and cannot definitively determine whether a stablecoin (including an asset-backed stablecoin) constitutes a security. The determination of whether a stablecoin is a security depends on a factual analysis of the specific characteristics of the stablecoin and the specific circumstances of its issuance and sale. If the actual situation of a stablecoin differs from that described in this statement, the Division's determination of whether it constitutes a security may also be different.

[6] Examples of such low-risk and highly liquid assets include: U.S. dollar cash equivalents, demand deposits in banks or other financial institutions, U.S. Treasury securities, and money market funds registered under the Investment Company Act of 1940. Excludes precious metals or other crypto assets.

[7] As explained in the "Legal Analysis" section below, in evaluating whether an issuer or promoter is engaged in an offering or sale of securities, federal courts will examine the marketing practices employed.

[8] Some asset-backed stablecoin issuers may be subject to state-law regulation, with state regulations potentially specifying the types of assets permissible in reserves.

[9] Reves v. Ernst & Young, 494 U.S. 56 (1990). Federal courts apply the standard established in the Reves case, not only analyzing a "note" but also applying it to other financial instruments with debt features. See, for example, In re Tucker Freight Lines, Inc., 789 F. Supp. 884, 885 (W.D. Mich. 1991) (court finds the "Reves method applicable to all debt instruments, including debt certificates"). Because asset-backed stablecoin issuers undertake the obligation to fulfill redemptions, stablecoins can be viewed as a debt of the issuer. While asset-backed stablecoins do not exhibit all typical note characteristics (such as no explicit maturity, no agreed interest payments, etc.), the Division wishes to expressly state that even if asset-backed stablecoins were considered notes or debt certificates, their issuance and sale would not constitute an offering and sale of securities, as per the Division's view.

[10] SEC v. W.J. Howey Co., 328 U.S. 293 (1946). In situations where necessary, federal courts typically apply both the Reves and Howey tests. For example, in Banco Espanol de Credito v. Security Pacific Nat'l Bank, 763 F. Supp. 36 (2nd Cir. 1991), the court applied both the Reves and Howey tests concurrently to evaluate loan participations involved in the case.

[11] Reves, 494 U.S. pp. 64–66.

[12] Ibid, p. 65. Notes excluded from the "securities" definition include:

(1) Notes related to consumer financing;

(2) Notes secured by residential mortgages;

(3) Short-term notes secured by small business or their assets;

(4) Notes for bank customers' character loans;

(5) Short-term notes secured by accounts receivable;

(6) Notes used for the orderly recording of commercial transactions' book-debts;

(7) Loan notes provided by commercial banks for enterprise day-to-day operations.

[13] Ibid, pp. 66–67.

[14] See, for example: SEC v. J.T. Wallenbrock & Associates, 313 F.3d 532, 537 (9th Cir. 2002): "Failure to satisfy any one factor is not determinative; the four factors should be considered collectively."

[15] Reves p. 60; Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 812 (2nd Cir. 1994).

[16] In relevant circumstances, we believe greater weight should be given to the buyer's motivation. See, for example, Pollack, p. 813 (court finds that in situations where buyers seek to invest funds in a safe, conservative investment, even if the seller's motivation differs, the note should still be considered a security).

[17] For example, asset-backed stablecoin issuers commonly offer their products in the form of stored-value or pre-paid products and comply with relevant state-level money transmission laws.

[18] Reves p. 68.

[19] Ibid, pp. 68–69.

[20] Ibid, p. 61. In the Reves case, the court found no risk-mitigating factors due to the notes' "unsecured, uninsured" nature, and stated that "if the securities laws and the UCC do not apply, these notes may exist entirely outside the federal regulatory scheme" (p. 69). Also see Pollack, 27 F.3d p. 814 (highlighting that in analyzing the fourth factor of Reves, "the amended complaint expressly states the involved mortgage loan participation interests as 'unsecured' and 'not collateralized'").

Original Article Link

On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.

On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.

Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.

In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.

Side Effects of ETFs

Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.

Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.

According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.

This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.

Chart showing the trend of net outflows for Grayscale among the 11 institutions

Institutional investors and some retail investors are shifting towards ETF products, partly due to compliance and tax considerations. On one hand, ETFs have much lower trading costs compared to cryptocurrency exchanges. While Coinbase's spot trading fee rate varies annually in a tiered manner but averages around 1.49%, for example, the management fee for IBIT ETF is only 0.25%, and the majority of ETF institution fees fluctuate around 0.15% to 0.25%.

In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.

According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications to the SEC for a Solana (SOL) ETF, with some institutions also planning to submit an XRP ETF proposal. Once approved, this may trigger a new round of fund migration. According to a report submitted by Coinbase to the SEC, as of April, the platform's trading revenue from XRP and Solana accounted for 18% and 10%, nearly one-third of the platform's fee revenue.

However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.

The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.

Robinhood Takes a Stand, Traditional Brokerages Join the Fray

On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.

With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.

In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.

Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.

Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.

User Data Breach: Is Coinbase Still Secure?

In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.

Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.

Among the victims was a well-known figure, 67-year-old Ed Suman, an established artist in the art world for nearly two decades, having been involved in the creation of artworks such as Jeff Koons' "Balloon Dog" sculpture. Earlier this year, he fell victim to an impersonation scam involving fake Coinbase customer support, resulting in a loss of over $2 million in cryptocurrency. ZachXBT critiqued Coinbase for its inadequate handling of such scams, noting that other major exchanges have not faced similar issues and recommending Coinbase to enhance its security measures.

Amidst a series of ongoing social engineering incidents, although there has not been any impact on user assets at the technical level so far, it has raised concerns among many retail and institutional investors. Especially institutions holding massive assets on Coinbase. Just considering the U.S. BTC ETF institutions, as of mid-May 2025, they collectively hold nearly 840,000 BTC, and 75% of these are custodied by Coinbase. If we price BTC at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Iceland in the year 2024.

Visualization: ChatGPT, Source: Farside

In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.

Visualization: ChatGPT

Once this security barrier is breached, not only could the rate of user attrition far exceed expectations, but more importantly, institutional trust in it would undermine the foundation of its business. Therefore, after a hacking event, Coinbase's stock price plummeted significantly.

CEXs are All in Self-Rescue Mode

Facing a decline in spot trading fee revenue, Coinbase is also accelerating its transformation, attempting to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced the official launch of perpetual contract products in 2025. This acquisition fills in Coinbase's gap in options trading and its relatively small global market share.

Deribit has a strong presence in non-U.S. markets, especially in Asia and Europe. The acquisition has enabled Coinbase to gain a dominant position in bitcoin and ethereum options trading on Deribit, accounting for approximately 80% of the global options trading volume, with daily trading volume remaining above $2 billion.

Meanwhile, 80-90% of Deribit's customer base consists of institutional investors, with their professionalism and liquidity in the Bitcoin and Ethereum options market highly favored by institutions. Coinbase's compliance advantage, coupled with its already robust institutional ecosystem, makes it even more suitable. By using institutions as an entry point, it can face the squeeze from giants like Binance and OKX in the derivatives market.

Facing a similar dilemma is Kraken, which is attempting to replicate Binance Futures' model in non-U.S. markets. Since the derivatives market relies more on professional users, fee rates are relatively higher and stickiness is stronger, making it a significant source of revenue for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, aiming to build a complete derivatives trading ecosystem to hedge the risk of declining spot transaction fee income.

With the surge of Memecoin in 2024, Binance, OKX, and various CEX platforms began massively listing small-market-cap, highly volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase was also forced to join the battle, successively listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these coins are controversial, they are frequently traded, with fee rates several times higher than mainstream coins, serving as a "blood-boosting" method for spot trading.

However, due to its status as a publicly traded company, this practice is a riskier endeavor for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND constitute securities.

In addition to the forced transformation strategies carried out by the aforementioned CEXs, they are also starting to lay out RWAs and the most talked-about stablecoin payment fields, such as the PYUSD launched through a collaboration between Coinbase and Paypal, Coinbase's support for the Euro stablecoin EURC by Circle that complies with EU MiCA regulatory requirements, or the USD1 launched through a collaboration between Binance and WIFL. In the increasingly crowded trading field, many CEXs have shifted their focus from just the trading market to the application field.

The golden age of transaction fees has quietly ended, and the second half of the crypto exchange platform game has silently begun.

Arthur Hayes: Why I'm Betting on ETH While the Market Is Obsessed with SOL

"I personally have also allocated 20% to gold, expecting the price of gold to potentially rise to $10,000-20,000 by the end of this market cycle."

Key Market Insights for May 16th, how much did you miss out on?

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After Surging 40%, Has Ethereum Price Peaked Upon Exiting the Craze?

Whether you are an insider or an outsider, these days you must be familiar with the news about Ethereum. The reason is simple, causing Ethereum enthusiasts to sigh with emotion and almost throwing off-guard those who defend Ethereum, Ethereum, with a "3-day surge of 40%," climbed to the top of the Douyin Hot List.

Where Does the Rally Come From?

As we all know, Ethereum launched the Pectra upgrade on May 7th. This most significant network upgrade since early 2024 integrates the Prague execution layer hard fork and the Electra consensus layer upgrade, significantly improving Ethereum's performance through 11 improvement proposals. The account abstraction feature (EIP-7702) allows users to flexibly manage wallets through social media accounts or multi-signature schemes, reducing the user threshold, attracting more users and developers. The staking mechanism optimization increases the validator ETH cap from 32ETH to 2048ETH and introduces a flexible withdrawal method, making it easier for institutions and individuals to participate in network security, enhancing the market's confidence in Ethereum's long-term value.

At the same time, Pectra optimized the interaction efficiency of Layer 2 networks such as Arbitrum and Optimism, making transactions faster and cheaper, leading to a surge in on-chain activity. As a crucial step for Ethereum's transition from "2G" to "5G," the Pectra upgrade not only enhances network vitality but also "recharges confidence" in the market, directly driving the price increase.

Related Reading: "Ethereum Skyrockets 22% in One Day, E Enthusiasts Rejoice"

It's not just Ethereum itself, as Wall Street also brought important bullish news.

The world's largest asset management company, BlackRock, proposed to the SEC allowing Ethereum ETFs for staking. This proposal is expected to elevate Ethereum ETFs from a mere investment tool to a bond-like "interest-bearing asset," bringing investors both capital appreciation and passive income, igniting market optimism about Ethereum's future potential.

Specifically, BlackRock has proposed to amend its S-1 filing to allow investors to create and redeem ETF shares directly with Ethereum instead of the U.S. dollar (i.e., in-kind redemption). This move, combined with its $2.9 billion BUIDL Fund launched in March 2024, aims to deepen the integration of traditional finance with blockchain. The BUIDL Fund is a tokenized fund operating on the Ethereum network, investing in traditional assets such as U.S. Treasury bonds. This setup is highly attractive to institutional investors, as they can not only benefit from Ethereum's price appreciation but also earn stable cash flow through staking.

Robert Mitchnick, BlackRock's Head of Digital Assets, stated in a CNBC interview in March 2025 that the addition of staking functionality will significantly enhance the appeal of the Ethereum ETF. He admitted that when the Ethereum spot ETF was launched in July 2024 without staking functionality, the market demand was lackluster, and staking could be the key to reversing this trend.

Meanwhile, the SEC's shifting stance on cryptocurrency regulation has also fueled this upward trend. During the tenure of the previous SEC chairman, the regulatory approach was tough, and staking was strictly viewed through the Howey test as a potential unregistered security. Therefore, when approving the Ethereum spot ETF in May 2024, staking functionality was explicitly prohibited.

However, with Trump back in the White House and Paul Atkins taking over the SEC, there has been a noticeable relaxation in crypto regulation. Apart from BlackRock, ETF issuers such as Invesco Galaxy, VanEck, WisdomTree, and 21Shares have also submitted applications for similar staking and in-kind redemption.

Related reading: "New Chairman Takes Office, SEC Transforms into 'Crypto Daddy' Within 48 Hours"

If staking ETFs are approved, the benefits are likely to go beyond price appreciation. The introduction of staking functionality could redefine the role of crypto assets, making them more similar to traditional financial products that provide returns and value appreciation, thereby driving Ethereum closer to mainstream finance.

Currently, the SEC still needs to address several decisions related to crypto ETFs, including whether to approve ETFs for Solana, XRP, Litecoin, and even Dogecoin. With the calls for an "altcoin season" growing louder, Ethereum's strong performance may just be the beginning of a larger crypto market frenzy.

In addition, the Trump family-related DeFi project WLFI is also bullish on this wave of rise, with frequent on-chain activities. According to on-chain data analyst @ai_9684xtpa's monitoring, a WLFI-related address is currently borrowing coins to go long on ETH, borrowing 4 million U from Aave to buy 1590 ETH at an average price of $2515 per ETH.

Has Ethereum's Price Peaked in This Wave?

For this epic surge of Ethereum after half a year of silence, the community has indeed gained more confidence and hope, which has also led to a revival of the entire altcoin market. However, amidst the joy, there are also voices of pessimism. Below is a summary conducted by BlockBeats based on community discussions.

The optimists point out that the current market structure is similar to the eve of the bull markets in 2016 and 2020, predicting a life-changing surge in the next 3-6 months, where some altcoins may even achieve astonishing single-day gains of up to 40%.

@liuwei16602825 stated that this surge signifies the return of the bull market as a sure thing. There is no need to worry about a pullback. The driving force behind the surge uses a high-cost isolated operation, fearing a drop more than any retail investor and will definitely do everything to support the price.

Related Reading: "Ethereum Leads the Surge Triggering the 'Altcoin Season' Speculation, How Do Traders View the Future Market?"

The bears mainly believe that this surge is different from the bull market of 2021, as the current market lacks the confidence of large-scale retail investors entering and holding positions for the long term, with funds rotating too quickly.

@market_beggar observed that a Bitfinex E/B whale has started to close positions and believes that if this whale maintains its high-speed position-closing operation for the next few days, it can be inferred that the whale no longer sees the upside potential of ETH, preparing to take profits and exit. The closing time will be a key focus going forward.

@FLS_OTC stated that there are still many uncertainties at the macro level, and the liquidity cannot support a major bull market. At this stage, it is a "last hurrah," not a complete reversal, and will continue to remain in a short position.

@off_thetarget believes that after ETH transitioned from POW to POS, it lost the "gold standard" of mining machine power cost support. The staking economic model led to a breakdown in value anchoring. Additionally, the L2 ecosystem (such as Starknet, zkSync, etc.) suffered from liquidity fragmentation, failing to establish an effective capital inflow mechanism, causing the collapse of the split disc pattern. Furthermore, the ETH community's excessive pursuit of technical narratives divorced from real-world needs resulted in a weak ecosystem growth. Therefore, he believes that ETH's intrinsic value system has crumbled, and the price is bound to plummet to the 800-1200 range, with a decisive short position at 1800.

@Airdrop_Guard, based on the core logic of the "High Probability Trading Strategy," where three sets of underlying logic different trading systems (such as volume depletion, price supply-demand, long/short position funding rate, etc.) simultaneously issue a short signal at the same point (2580), creating a high-probability trading opportunity. He emphasizes that these systems must be based on different algorithms and logics (rather than mere technical indicator overlays). The current ETH trend aligns with the short conditions in multiple independent dimensions of his trading system, hence the decision to short.

Overall, Bitcoin still maintains over 54% market dominance, and institutional funds' continued preference for it may limit the altcoin's upward potential. The market's future direction will depend on multiple factors, such as Bitcoin's price trend, global macroeconomic conditions, and whether funds can effectively rotate from Bitcoin to the altcoin sector.

Although Ethereum's recent leadership in the market has brought about optimistic sentiment, investors still need to remain rational as different sectors of altcoins are likely to show divergence in trends. Whether this round of Ethereum's rise will usher in a true altcoin frenzy may require more time and conducive conditions.

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