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Comment by qeternity | Hacker News Reader

> You're absolutely right. Gensler has cited the Howey test inconsistently. Well, under that definition, stablecoins are not securities. There's no expectation of profits.

Uhh, the Howey test is not a magical test to determine what a security is. For many things, Tether included, we have very simple rules based tests.

The Howey test is to determine things that might not qualify under letter-of-the-law but absolutely are investment contracts in substance.

Crypto (stable coins included) runs afoul of both types of definitions pretty much universally.

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>the Howey test is not a magical test to determine what a security is

You are correct!

>For many things, Tether included, we have very simple rules based tests.

Then I have a very simple question for you.

Which of the following is Tether? any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

Just choose one of those that would apply to Tether.

Honestly, I'd consider it comparable to the banknotes in the pre-Civil War banking ecosystem.

A bazillion local banks issued scraps of paper they said were exchangeable for "one dollar on demand". (This being when a "dollar" was a large disc of silver or a tiny one of gold).

At the base consumer level, there was no expectation of profit to accept them. At best, you could go over to the bank and they would give you the silver disc you actually wanted.

People settled for it because the alternative was less convenient or accessible, especially in parts of the country where government-issued metal discs didn't circulate freely. (much like in the crypto market, where people choose stablecoins because the fiat on/off-ramps are slow, expensive, or legally burdensome)

It's interesting to consider what happened next for those notes:

First, it was definitely possible to speculate, because bank fraud and failure was a well-known thing and paper notes traded at a discount to coin. A dollar note from a far-away bank that was difficult to redeem might pass at 50 cents, while the well established one down the street would pass at or near face value. Some old newspapers would have reports indicating the going discount rates. Similarly, we've seen stablecoins break peg due to a redemption problem, backing panic, or trust breakdown.

Second, the entire party stopped when the federal government began seriously issuing paper money and instituted a tax on private notes; it made the venture uneconomical overnight. Similarly, an actual central-bank digital currency hitting the exchanges would likely displace many of the use cases of stablecoins.

Third, we had "wildcat banking" -- it looks and smells like a banknote, but the "bank" was in the middle of nowhere, where the only customers are the pumas and bobcats. By putting that sort of obstacle in the way of redemption, you could get away with issuing notes backed by very little or nothing. Reminds me a lot of the stablecoins that say 'we can't directly redeem to Americans' or 'You can only redeem under specific narrow conditions that most retail consumers will never meet', which makes it possible to manage their outflow and hide their capitalization levels.

Depending on a number of factors, Tether falls under a few of these designations (which are overlapping and not mutually exclusive by design).

Tether is without a doubt (by their own design/admission) both a "transferable share" and a "certificate of deposit for a security" (since the majority of their "reserves" are supposedly securities).

For sure without regulatory clarity very simple and magical rules based tests apply pretty much universally. I hear the SEC is short staffed.

What clarity is lacking?

The SEC has been pretty clear on a number of things, and then Coinbase et al who don’t like the findings come back and play victim.

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