A commissioner at the U.S. Securities and Exchange Commission (SEC) says the agency isn’t being realistic about the full extent of the risks stablecoins could pose to retail holders.

In a new statement, Commissioner Caroline Crenshaw says that the SEC’s recent announcement about dollar-pegged crypto assets is one that “drastically understates” the risks of the US dollar stablecoin market.

According to Crenshaw, retail investors typically access stablecoins via intermediaries. However, she notes that the intermediaries have no legal obligation to redeem stablecoins, which is a danger to investors.

“Holders of these [stablecoins] can redeem them only through the intermediary. If the intermediary is unable or unwilling to redeem the stablecoin, a holder has no contractual recourse against the issuer.

The role of intermediaries, particularly unregistered trading platforms, as primary distributors of USD-stablecoins poses a panoply of significant, additional risks that staff does not consider.”

Crenshaw goes on to note that retail stablecoin users do not have the redemption rights the SEC claims they do. The commissioner points out that retail entities cannot access a stablecoin issuer’s reserves, leaving them to accept the market price determined by an intermediary.

“The fact that intermediaries conduct most retail USD-stablecoin distribution and redemption significantly diminishes the value of the issuer actions [the SEC] relies on as ‘risk-reducing features.’

Key among these features is an issuer asset reserve that staff describe as designed to ‘satisfy fully their redemption obligations,’ i.e., with enough assets to pay out a $1 redemption for each outstanding coin.

But generally speaking, as described above, issuers have no ‘redemption obligations’ to retail coin holders. These holders have no interest in or right to access the issuer’s reserve. If they redeem coins through an intermediary, they are paid by the intermediary, not from the issuer’s reserve.

The intermediary is not obligated to redeem a coin for $1 and will instead pay the holder the market price. Retail coin holders therefore do not, as staff claims, have a ‘right’ to ‘redemption for USD on a one-for-one basis.'”

Earlier this week, the SEC announced that non-yield-bearing stablecoins do not qualify as securities that fall under its jurisdiction but that the agency has yet to formulate views on alternative types of stablecoins, such as those that are yield-bearing, of the algorithmic variety, or pegged to non-USD assets.

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