One of crypto’s buzziest stablecoins might be heading for trouble

Few things are buzzier in the blockchain world right now than Dai. The Ethereum-based crypto-token uses smart contracts to adjust its own supply in order to keep its value stable and pegged to the US dollar. Advocates envision it as a crucial component of a decentralized financial system. In theory, such a system would make financial services such as lending accessible to people who don’t have access to the traditional system—for example, because they don’t have a bank account or credit history.

But while Dai, developed by a company called MakerDao, is certainly trendy at the moment, recent developments suggest that its future is not at all certain.

On Friday, Valerie Szczepanik, senior advisor for digital assets at the US Securities and Exchange Commission’s division of corporation finance, suggested that some so-called stablecoins may be securities. That would make them subject to strict—and expensive—regulatory requirements.

There are three stablecoin categories, said Szczepanik. Some are backed by real assets like gold, some are backed by fiat money held in the issuer’s bank account, and some, like Dai, rely on more complicated mechanisms to maintain price stability.

Szczepanik didn’t say any of the categories were off the hook, but she went out of her way to single out the third one. Coins that rely on “some sort of pricing mechanism” to maintain their value, she said, may fall within the purview of the SEC, whose charge is to protect investors from fraud and scams. In particular, if a stablecoin has “some central party controlling the price fluctuation over time,” that “might be getting into the land of security,” Szczepanik said.

Back in December, the founders of an “algorithmic” stablecoin project called Basis, which had raised $133 million from high-profile venture capital firms, cited securities law as the reason for abruptly shutting it down. “Having to apply US securities regulation to the system had a serious negative impact on our…