Circle Pushes SEC to Treat GENIUS Act Stablecoins as Cash and Drop the 2% Capital Haircut in New Crypto Fundraising Rules

Circle, the issuer of USDC and a publicly listed company on the New York Stock Exchange, has submitted a formal comment letter to the Securities and Exchange Commission backing the agency's proposed Regulation Crypto Assets while calling for targeted changes that would prevent stablecoins from being treated as riskier than cash in the new crypto capital markets framework. The letter, submitted October 20 and announced October 28, makes three interconnected requests: that qualifying payment stablecoins be classified as "cash" under the proposed Rule 302(b); that GENIUS Act-compliant stablecoins be freed from the existing 2% broker-dealer capital haircut; and that the SEC clarify how permissionless blockchain networks — including Circle's own Arc blockchain — fit within the proposed framework. Circle's shares traded at $79.86, down 2.11%, on the day of the announcement.

Key Takeaways

• Circle (NYSE: CRCL), issuer of USDC, submitted a comment letter to the SEC on October 20, announced October 28, backing the proposed Regulation Crypto Assets with specific requested changes

• The SEC introduced the Regulation Crypto Assets proposal in August 2026 to create registration exemptions for certain crypto asset offerings — one allowing up to $5 million raised over four years, another allowing up to $75 million in a 12-month period, both retaining disclosure requirements and anti-fraud protections

• Circle's primary stablecoin request: qualifying payment stablecoins should constitute "cash" for purposes of proposed Rule 302(b), receive dollar-based valuation treatment, and qualify for appropriate accounting and customer-reserve treatment

• Circle separately asks the SEC to remove the existing 2% capital haircut applied to stablecoins held by broker-dealers, if those stablecoins comply with the GENIUS Act

• Circle wants the framework to remain technology-neutral and to account for how blockchain networks improve settlement speed, transaction programmability, and recordkeeping

• Circle requests regulatory clarity on how permissionless blockchain network structures — including its own Arc blockchain — should be treated under the proposed rules

• Circle wants the SEC to align its crypto fundraising rules with the GENIUS Act, the federal stablecoin oversight framework taking effect in January 2027

• CRCL shares closed at $79.86, down 2.11%, on the day

What the SEC's Proposed Regulation Crypto Assets Does

To evaluate Circle's specific requests, it helps to understand what the SEC's proposed Regulation Crypto Assets is attempting to accomplish — and how it fits into the existing securities law landscape for crypto.

Under the Securities Act of 1933, most securities offerings must be registered with the SEC — a process involving detailed disclosure documents, financial statement audits, and a lengthy review period that imposes significant cost and time on issuers. Certain categories of securities offerings are exempt from this registration requirement: private placements (Regulation D), smaller public offerings (Regulation A+), and crowdfunding (Regulation CF) are among the existing exemption frameworks.

The SEC's August 2026 Regulation Crypto Assets proposal creates new exemptions specifically designed for crypto asset offerings — acknowledging that the existing exemption framework was not built with token offerings or blockchain-based capital formation in mind. Two specific exemption tiers are proposed:

Tier One — up to $5 million over four years: A lower-ceiling exemption for smaller crypto projects, allowing issuers to raise capital without full registration if they comply with the disclosure and conduct requirements in the proposal.

Tier Two — up to $75 million in 12 months: A higher-ceiling exemption for larger crypto asset offerings, similarly exempt from full registration under the proposed framework.

Critically, both exemptions retain disclosure requirements and federal anti-fraud protections. Exemption from registration does not mean exemption from all securities law obligations — issuers remain subject to the anti-fraud provisions of the Securities Exchange Act, and the disclosure requirements in the proposed exemptions are designed to give investors the material information they need to evaluate an offering even without a full registration statement.

The proposal represents a meaningful regulatory development for the crypto industry, which has historically operated in ambiguity about whether token offerings constitute securities offerings and what registration or exemption pathway applies. A structured exemption framework gives compliant projects a defined path to onchain capital formation within the securities law system.

Circle's First Request: Payment Stablecoins as "Cash"

Circle's most foundational stablecoin request is that the SEC classify qualifying payment stablecoins as "cash" for purposes of proposed Rule 302(b) within the Regulation Crypto Assets framework.

The practical implications of this classification are substantial. Under securities law, "cash" occupies a distinct regulatory category — it is the baseline liquid asset that is treated as risk-free for most purposes. When a rule says a party can hold "cash" to satisfy an obligation, meet a reserve requirement, or demonstrate financial capacity, how that rule defines "cash" determines whether stablecoins can be used.

If a GENIUS Act-compliant stablecoin — fully backed by dollar-denominated assets, issued by a federally supervised entity, redeemable at par on demand — is not classified as "cash" under Rule 302(b), it could be excluded from arrangements where cash would otherwise be usable, despite being economically equivalent. This would create artificial barriers to stablecoin adoption in regulated securities markets that are not justified by any difference in financial risk.

Circle's letter further specifies that qualifying payment stablecoins should receive "dollar-based valuation treatment" — meaning they should be valued at $1 for regulatory calculation purposes rather than being subject to market-price volatility discounts, consistent with their design as fixed-value instruments. And they should qualify for "appropriate accounting and customer-reserve treatment" — meaning broker-dealers and other regulated entities should be able to hold stablecoins in customer reserves with the same accounting treatment as dollar deposits.

Circle's quoted language from the letter asks the SEC to "clarify that qualifying payment stablecoins constitute 'cash' for purposes of proposed Rule 302(b), receive appropriate dollar-based valuation treatment, and qualify for appropriate accounting and customer-reserve treatment." The three requests are complementary: they work together to establish that GENIUS Act-compliant stablecoins are functionally equivalent to cash in regulated financial contexts.

Circle's Second Request: Eliminating the 2% Capital Haircut

Circle's second targeted request is the removal of the existing 2% capital haircut applied to stablecoins held by broker-dealers, for stablecoins that comply with the GENIUS Act.

To understand why this matters, it helps to understand how capital haircuts work in broker-dealer regulation. When broker-dealers hold assets — whether as proprietary positions or as securities or cash held for customers — they are required to maintain minimum net capital under SEC Rule 15c3-1. The "net capital" calculation assigns a percentage reduction (the "haircut") to the value of various assets to reflect the risk that those assets could decline in value before they can be liquidated.

For traditional securities like corporate bonds, haircuts of 15-30% are common, reflecting meaningful price volatility and liquidity risk. For cash and cash equivalents — instruments that can be reliably converted to dollar value at any time — haircuts are zero or negligible, because there is no meaningful risk of value loss.

A 2% capital haircut on a stablecoin means a broker-dealer holding $1 million in USDC would count it as only $980,000 for net capital purposes. This is not catastrophic, but it imposes a regulatory cost relative to holding actual dollar deposits (which face no haircut) that is not justified by any real difference in financial risk. A GENIUS Act-compliant stablecoin — fully backed by US Treasurys and cash, issued by an OCC-supervised trust bank or NYDFS-regulated entity, redeemable at par on demand — is functionally indistinguishable from a bank deposit in its risk profile.

Circle's argument is that applying a capital haircut to GENIUS Act-compliant stablecoins treats them as riskier than they are, creating a regulatory disadvantage relative to traditional dollar instruments that is inconsistent with the risk-based rationale of capital requirements. Removing the haircut for GENIUS Act-compliant stablecoins would align the SEC's treatment with the federal stablecoin framework established under the GENIUS Act.

The GENIUS Act Alignment Request: Consistency Across Federal Frameworks

Circle's request that the SEC align its proposed Regulation Crypto Assets with the GENIUS Act reflects a broader principle in regulatory design: different federal agencies should treat the same instruments consistently, particularly when one agency's framework is specifically designed to define that instrument's regulatory status.

The GENIUS Act establishes the federal legal definition of a "payment stablecoin" and the conditions under which a stablecoin qualifies for that status — including reserve requirements, issuer eligibility, oversight framework, and holder protections. A stablecoin that meets the GENIUS Act's standards has cleared a specifically designed federal regulatory threshold.

If the SEC's capital markets rules treat GENIUS Act-compliant stablecoins differently from the GENIUS Act's own framework — for instance, by not recognising them as cash equivalents despite their design and federal certification as stable dollar instruments — it would create internal inconsistency in the US federal regulatory approach to stablecoins. A stablecoin that is legally a "payment stablecoin" under Treasury/OCC oversight but is not treated as cash by the SEC would leave market participants uncertain about how to account for and use these instruments in regulated capital markets contexts.

Circle's comment letter asks the SEC to remove this inconsistency proactively, before the GENIUS Act takes full effect in January 2027. Harmonising the SEC's treatment with the GENIUS Act framework would provide clarity for broker-dealers, exchanges, and other regulated entities that need to know how to handle stablecoins in their capital calculations and customer account structures.

Technology Neutrality and the Arc Blockchain

Beyond the stablecoin-specific requests, Circle's comment letter includes two framework-level requests about how the regulation treats blockchain technology itself.

Technology neutrality: Circle urges the SEC to design Regulation Crypto Assets as a technology-neutral framework — applying the same rules to economically equivalent activities regardless of the technology used to conduct them. A capital-raising activity is a capital-raising activity whether it is conducted through a traditional securities placement, a SPAC, or a token offering on a blockchain. Circle's argument is that the SEC should focus on the economic substance and investor protection properties of an offering rather than creating different rules for blockchain-based fundraising that do not reflect any real difference in the financial risks or investor interests involved.

Blockchain-specific advantages — faster settlement, programmable transaction conditions, transparent and immutable recordkeeping — should be accommodated by the framework rather than treated as reasons for different regulatory treatment. As Circle notes, blockchain networks can improve "settlement speed, transaction programmability and recordkeeping" in ways that benefit investors and markets; a technology-neutral framework would allow these benefits to be realised within the regulatory structure rather than existing in tension with it.

Arc blockchain treatment: Circle specifically requests that the SEC clarify how different permissionless network structures should be treated under the proposed rules — including networks such as Arc (CRYPTO: $ARC), Circle's own blockchain. This request addresses a practical regulatory uncertainty: the proposed Regulation Crypto Assets defines how crypto asset offerings should be structured and disclosed, but the treatment of the blockchain network on which those offerings occur — and the obligations that network's structure creates for issuers — is not yet clear.

Permissionless networks, by definition, do not have a central controlling party that can be held responsible for all network activity. An issuer whose token is sold under a Regulation Crypto Assets exemption and then traded on a permissionless network faces different compliance considerations than one using a permissioned blockchain where participant access and transaction validity can be controlled. Circle's request for clarity about how permissionless networks like Arc fit within the framework is asking for regulatory guidance that all issuers using such networks will eventually need.

Crypto Issuer Post-Decentralisation Obligations

The comment letter also addresses a third category of requested changes: the obligations of crypto issuers after their networks become "operational" — the point at which a network has sufficiently decentralised that the original issuer may not retain meaningful control.

This is one of the most legally complex questions in crypto securities regulation. If a company issues tokens that initially look like securities (the company controls the network, profits from token price appreciation, and provides the managerial efforts that investors are relying on), but the network later decentralises to the point where no single party controls it or drives its development, does it remain a security? And if the nature of the instrument changes, what are the issuer's ongoing disclosure obligations?

Circle's request is for clarity on what obligations issuers retain after their networks become operational and decentralised — a question that affects every project that raises capital through a token offering with the intent of eventually decentralising network control. Without regulatory clarity on this point, issuers face uncertainty about when, if ever, they can reduce compliance costs associated with ongoing securities law obligations for tokens that are no longer functioning as investment contracts in the traditional sense.

What Circle's Letter Means for the Broader Industry

Circle's comment letter is notable in the context of the Regulation Crypto Assets rulemaking for several reasons:

It represents supportive engagement from a major regulated entity. Circle, as a publicly traded company (NYSE: CRCL) and holder of an OCC trust bank charter, is one of the crypto industry's most regulated participants. Its backing of the SEC's proposed exemption framework — rather than opposing it — signals that regulated crypto companies see the SEC's approach as workable with targeted modifications.

The stablecoin treatment issues are industry-wide. The 2% capital haircut and the "cash" classification questions affect any broker-dealer, exchange, or registered entity that holds or facilitates trading in stablecoins. Circle's requests, if adopted by the SEC, would benefit every GENIUS Act-compliant stablecoin issuer, not just USDC. This creates natural incentives for other stablecoin issuers to submit similar or supporting comment letters.

The technology neutrality principle matters for all tokenised offerings. Every company considering a token offering under the proposed exemption framework has an interest in the regulation being technology-neutral rather than treating blockchain-based offerings as inherently different from equivalent traditional securities transactions.

The post-decentralisation question is unresolved. Clarity on issuer obligations after network decentralisation has been one of the crypto industry's most consistent requests from regulators for years. If the SEC incorporates clear guidance on this question into the final Regulation Crypto Assets rules, it would resolve uncertainty that has deterred legitimate projects from launching token-based capital formation programs.

Circle's Share Price: $79.86, Down 2.11%

Circle's shares (NYSE: CRCL) traded at $79.86, down 2.11% on the day of the announcement. The decline is consistent with the broader market context: crypto-related stocks have faced pressure in an environment characterised by Bitcoin trading near $80,000, general risk-off positioning, and uncertainty ahead of Federal Reserve policy decisions. The stock movement on the announcement day likely reflects broader market dynamics rather than any specific market reaction to the comment letter, which is a public policy engagement rather than a revenue event.

Summary

Circle's October 20 comment letter to the SEC, announced October 28, supports the proposed Regulation Crypto Assets — the SEC's framework for exempting certain crypto asset offerings from securities registration requirements with $5 million four-year or $75 million 12-month caps — while pushing for targeted changes that address stablecoins' treatment within the new rules. The three core stablecoin requests — cash classification under Rule 302(b), dollar-based valuation, and appropriate customer-reserve treatment — are designed to prevent GENIUS Act-compliant stablecoins from being treated as riskier than dollar deposits in regulated capital markets contexts. The request to remove the 2% broker-dealer capital haircut for GENIUS Act-compliant stablecoins extends this argument to the capital calculation framework. The technology-neutrality and Arc blockchain treatment requests address framework-design principles that will affect how all blockchain-based capital formation fits within the proposed regulatory structure. If the SEC incorporates Circle's recommendations into the final rules, the result would be a closer alignment between the SEC's capital markets framework and the federal stablecoin oversight regime the GENIUS Act establishes — reducing the regulatory friction that currently prevents stablecoins from being used as seamlessly as dollar cash equivalents in regulated securities and broker-dealer contexts.