Imagine the cozy scene: it’s the Holidays with your Grandma, the affectionate woman who all your whole life has sent you little presents for milestones big and small. A card for each birthday. A card for making dean’s list. Another for acing that first-year contracts exam in law school. And into each greeting card was always tucked a bit of money—a twenty-, a fifty-, occasionally even a hundred-dollar bill.

Well, you’re a grown-up lawyer now, with money in your pocket. Now it’s your turn to give Grandma a little present. But you decide to show Grandma something exciting and new when you do so. You help your Grandma set up her first crypto wallet.

And instead of handing her a couple hundred-dollar bills, you send her different money: Digital money. Blockchain money.

To be precise, USDC stablecoins.

Your Grandma is delighted! She loves to learn new things! And the little blue USDC discs in her wallet, inscribed with their little white dollar signs, utterly charm her.

“So pretty,” she says. “They look just like money.”

“I can show you how to use USDC to shop online, Grandma,” you say. “You should buy yourself something nice.”

Grandma smiles. “Oh, you know me, dear. I just need a new sweater and some plain underwear.”

Later, feeling frankly a little smug about what a nice thing you did, you decide to look a little further into this USDC stuff. After all, you’re a lawyer—the kind of person who reads the back of the toothpaste tube. You love the fine print.

You already know that USDC tokens are backed by real money—they’re redeemable 1:1 for US dollars. But is there more to know?

So you go to “Legal” page of the website for Circle Internet Financial, LLC, the issuer of USDC, and start poking around. And there you see a whole list of documents—Circle Mint User Agreement, USDC Terms, USDC Risk Factors, Acceptable Use Policy, and more. All this stuff, just for those little blue discs?

You randomly click on the Acceptable Use Policy...and catch your breath.

Because there you see a list of “prohibited activities,” beginning alphabetically with (of course) Adult Services. And tucked into that first paragraph, in among prohibited activities that surely your Grandma has never heard of, there is a ban on “lingerie and passion parties”.

Wait—does that mean no “lingerie”? or no “lingerie parties”?

You realize that, at that very moment, your Grandma is shopping online with her USDC for sensible undies. Is she on the verge of violating a serious legal contract with Circle?

Uh oh.

Grandma!

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I kid, of course—you can relax about Grandma. The USDC Acceptable Use Policy apparently applies only to institutional entities—and the “lingerie” prohibition seems pretty clearly pointed at “lingerie parties” rather than actual lingerie. (Don’t Google this stuff at work.)

And okay, I admit it—I’m perfectly willing to tease out a tendentious story just to manufacture a cheap headline. But it’s all in the service of a greater good, I promise!

Because you will indeed find extensive terms and conditions on the Circle website that apply to all users of USDC. And that poses some really interesting legal questions.

Questions like: What kind of contract obligations do you owe to Circle simply by accepting USDC into your wallet? What obligations does Circle owe to you? And—of course; I’m a UCC fan, after all—what does all this mean for USDC under UCC Article 12?

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To start with, let me say that I really like the USDC logo. It does look like money. And we’re clearly meant to think of it that way—Circle even calls it “The World’s Digital Dollar” on its site.

And so it’s natural to think that USDC tokens should just flit in and out of your crypto wallet as easy as dollars go in and out of your checking account—freely, light as a feather, no strings attached.

But according to Circle’s website that’s not really the case. The documents there say that USDC comes fairly festooned with strings.

Back to those docs. While the Acceptable Use Policy may not apply to everyday users of USDC, the USDC Terms certainly do—or at least a lot of them do.

First off, know that there are two kinds of users of USDC—User Type A and User Type B. Type A’s are the users who can directly mint new USDC tokens from Circle by delivering fiat dollars. Users eligible to be Type A are institutions located in supported jurisdictions who sign up a Circle Mint Agreement and open a Circle Mint account. They’re dealing directly with Circle.

A User Type B is anyone else who just holds USDC—you, me, your Grandma.

And while the magic of USDC is that each token is backed 1:1 by US dollars or USD-denominated assets held as reserves in segregated accounts, not all users are entitled to redeem USDC for dollars. Circle only promises the User Type A’s that they may redeem. For a Type B user to be able to redeem its tokens, that user would have to become eligible to open a Circle Mint account, sign on to a Circle Mint Agreement directly with Circle, and become a User Type A. Your Grandma probably wouldn’t qualify.

But it’s not like the USDC held by the Type B’s lack backing. Under the USDC Terms, Circle does indeed agree to redeem for dollars the tokens held by a User Type B—as long as they either become a Type A themselves, or pass their USDC into the hands of someone who is. And the market regards that promise from Circle as worth a value of $1.00 per USDC token—even if it’s held in your Grandma’s wallet.

But aside from the redemption promise running from Circle to users, the USDC Terms contain a bunch of terms that go the other way—from users in favor of Circle.

If you hold USDC, you represent that you are over 18, are not engaging in illegal activity, and that you agree to comply with tax, sanctions and anti-money laundering laws. These all seem pretty unobjectionable (unless you’re a precocious 10-year-old).

But there’s more.

There are lists of risk factors, risks that Circle discloses to you—and that you agree to assume. It’s a litany of all the crazy things that could go wrong with stablecoins. Among other risks: You accept all consequences of using USDC. You accept Circle’s right to block, freeze and blacklist USDC accounts. You accept risks of protocol failures, cyber-attacks, third-party wrapping of tokens, legal and regulatory uncertainty. You even accept the risk of encumbrances on the USDC arising from actions of prior holders of the USDC.

That last one might really give you pause. After all, no one expects that a twenty-dollar bill they got as change from the convenience store might actually be worth less than $20 because some deadbeat upstream holder got a lien put on it.

And of course, no on-line terms and conditions would be complete without the users indemnifying the company. The USDC Terms don’t disappoint. By holding the little blue tokens your Grandma indemnifies Circle Internet Financial, LLC (and affiliates, directors, officers, etc.) for all losses resulting from breach of the USDC Terms and her use of the USDC.

“Well, so what?” you might say. Burdensome terms of use have been par for the course since the dawn of the Internet. We’ve all clicked through enough “I agree” buttons and “By Using This Website I Acknowledge” dialogue boxes to know that the online economy is rife with overreaching terms. Why shouldn’t Circle be entitled to a similar contract?

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Well, “contract” is the key word.

When I click on an “I agree” button or navigate through a web page tangled with links and boldface disclaimers, I can be fairly said to have been put on notice, to have agreed.

But when I buy $100 of USDC in my Coinbase account, there’s no button or popup or other special admonition that I am confirming my agreement with those USDC terms documents. The USDC just gets added to my balance.

Where did I agree? Where was a contract formed?

Maybe Circle is thinking it’s enough for the User Type A’s to expressly sign the Circle Mint Agreement and are on the hook for the USDC Terms. Since all redemptions come through User Type A’s, those gatekeepers at least have clearly assented.

Or, maybe it’s a theory of implied contract—the idea that simply by using the stablecoin, users are agreeing to the terms. Sort of like how, when you sit down in a barber’s chair, you implicitly agree to pay for the haircut when you get back out of the chair—even if no words are ever spoken.

Or could it be possible that there is something inside of or attached to the token itself that links it to the USDC Terms? A URL referenced in the smart contract, perhaps, or metadata encoding a link to the terms? If this were the case, not only might it improve Circle’s argument for having a good contract with your Grandma. It would also have some intriguing Article 12 impacts for USDC.

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So we come to the UCC at last. And to me the most interesting question: Under the UCC what exactly is this USDC stuff, anyway?

Well, to start with, USDC is not “money” under the UCC. (I could go down the technical UCC rabbit hole of why that is, but you know what? Just trust me on it.)

But if USDC tokens aren’t “money” under the UCC, what are they?

Technologically USDC are fungible crypto tokens, created and transmitted via balances maintained in smart contracts. In Ethereum-speak they are ERC-20 tokens, and on other supported blockchains they adhere to parallel fungible token standards. The tokens are basically electronic records of which blockchain address owns what balances of USDC.

In creating Article 12, the drafters had such electronic records in mind. And records like these are designed in a way such that we can pretty safely assume they are “controllable” for purposes of Article 12. (Analysis of “control” under Section 12-105 can also be a whole thing, so again—just trust me.)

If USDC tokens are electronic records which can be subjected to Article 12-style “control”, then the USDC tokens would likely be “controllable electronic records,” or CERs, under Article 12. And that would be good. CERs behave a lot like money. For example, if you take CERs innocently and for value, then you can take them free of other property claims (like liens of deadbeat upstream holders).

But Article 12 hasn’t yet been enacted by all the states. And if the laws of a state that hasn’t enacted Article 12 were to apply, then the USDC would likely be a different kind of UCC asset—a “general intangible.” General intangibles don’t act like money. In fact, if your USDC tokens were treated as general intangibles rather than CERs, you might indeed want to do a lien search against the person who sent them to you to make sure they haven’t put liens on them.

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This is where the question of linking the USDC tokens with the USDC Terms could be important. Article 12 keys the applicable law to what it calls the “controllable electronic record’s jurisdiction.” It then defines a cascade of alternative rules for determining what that jurisdiction is. If none of the alternatives apply, the rules default to District of Columbia.

One of those alternatives says that if

“the controllable electronic record, or a record attached to or logically associated with the controllable electronic record and readily available for review, expressly provides that the controllable electronic record is governed by the law of a particular jurisdiction, that jurisdiction is the controllable electronic record’s jurisdiction.”

As it happens, the USDC Terms say they are governed by Delaware law. So if the USDC Terms are somehow “attached to or logically associated with” the USDC CERs and constitute part of the record, then the “controllable electronic record’s jurisdiction” of USDC is Delaware. If the USDC Terms aren’t attached or logically associated with the tokens, then DC law would be the CER’s jurisdiction.

(Sticklers among you will notice that I’m ignoring another rabbit hole—namely whether the USDC Terms are part of the “system” in which the USDC is recorded. But feel free to pursue it yourselves!)

As it happens, Article 12 has been enacted in both Delaware and DC. And furthermore, even if the choice-of-law analysis started in a state that hasn’t enacted Article 12, since Circle is a Delaware LLC you’d end up under Article 12-friendly Delaware law. Since the CER’s jurisdiction is either Delaware or DC, and both are Article 12 states, the USDC should be CERs, not general intangibles. (You already know what I’m going to say about the choice of law rabbit hole here—trust me on this one too.)

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How much linkage is required for the USDC Terms to be “attached or logically associated” with the USDC tokens? It’s not super clear.

That phrase, “attached or logically associated,” is intended to be given a “broad and functional construction” according to the official comments to Article 12—indeed the comments say that “overly literal or technical interpretations of the terminology ‘attached to’ or ‘logically associated’ are inappropriate.”

But the official comments to an earlier model law, the Uniform Electronic Transactions Act (UETA)—which Article 12 doesn’t displace—says regarding its use of the same phrase for a symbol attached as an electronic signature that UETA’s rule “expressly provides that the symbol must in some way be linked to, or connected with, the electronic record being signed.”

Personally, I am a tech non-expert. I can only just about find my way to the Etherscan page for the USDC smart contract and click on the “contract” button. However, once I do so I am utterly unable to scale the wall of Solidity computer code that confronts my eyes. I can’t tell by looking whether any link to the USDC Terms resides in the token smart contract or in any associated metadata. But nothing clearly leaps out.

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But why should any of this attach-or-logically-associate stuff matter, if we concluded that Article 12 applies in any case?

There’s a couple reasons.

For one thing, while it’s true that if there is no attachment or logical association of the token with the USDC Terms then choice of law rules likely say that Article 12 applies in any case, and the tokens are likely CERs. But if there were to be such an attachment or logical association, then the USDC Terms would decide which law applies.

For example, if the USDC Terms were attached to the tokens, and an update changed the governing law to from Delaware to New York or Massachusetts (where Article 12 is not in effect), the result could be that the tokens are not CERs after all. (Circle, if you’re listening, please don’t do this.)

Additionally, it’s more than just a choice of law question. If the USDC Terms were attached or logically associated with the tokens, then the terms would need to be fly-specked for their impact on a range of Article 12 issues (and not just general contract issues). There are critical considerations informed by such attached or logically associated records, especially the source and nature of Article 12 “control” powers and the proper sharing of control.

Finally, remember that stablecoins are just a special flavor of tokenized RWAs. Understanding how a tokenized asset is built to link the holder’s rights to the valuable underlying asset—in the case of USDC, the giant special-purpose money market fund that holds all those juicy reserves—is a critical exercise. Tokenized RWAs are layers of contracts and UCC assets, each one connected somehow with the one beneath.

So, far from being clean little blue circles traveling around with no strings attached, USDC tokens drag along layers of contractual veils like Mrs. Havesham’s wedding dress. And that’s neither a good thing or a bad thing—it’s just the nature of USDC.

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Please understand that I’m not trying to pick on USDC, or imply it’s something to avoid. Far from it—I think it’s an incredible product and promises huge benefits. Understanding what’s legally behind the pretty blue disks enhances our confidence in them, not the contrary.

So go ahead—join your Grandma for a little online shopping with USDC, and feel good about it. But encourage her to buy something more fun with her USDC than sensible underwear.