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The New York Department of Financial Services (DFS) has ordered Paxos to stop minting BUSD, the third-largest stablecoin in the world and associated with Binance, the largest exchange by volume. The action comes after the SEC reportedly informed Paxos it would take enforcement action against the blockchain infrastructure firm, arguing that the BUSD is seen as an unregistered security.
SEC Planning to Bring Enforcement Action Against Paxos, Says BUSD is an Unregistered Security
Paxos, a crypto firm that issues Binance’s stablecoin Binance USD (BUSD), has been ordered by New York regulators to stop issuing the dollar-backed token, the Wall Street Journal reported Monday. Paxos will continue to manage token redemptions, Binance said.
“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS). Paxos is regulated by NYDFS. BUSD is a stablecoin wholly owned and managed by Paxos.”
– Binance CEO Chanpgeng Zhao said in a Twitter thread.
The move comes after the United States Securities and Exchange Commission (SEC) reportedly sent a Wells Notice to Paxos, which serves to inform companies or individuals that the government agency is planning to take enforcement action against them. In the notice, the SEC allegedly said that BUSD is seen as an unregistered security.
Binance’s CEO Changpeng Zhao (CZ) said if the US courts rule that BUSD is a security, the decision “will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.” He added that Binance would continue supporting BUSD in the near term, though the crypto exchange will eventually stop using BUSD as the leading pair for trading.
BUSD, the third-largest stablecoin in the world, was launched in 2019 after Binance teamed up with Paxos, a New York-based blockchain infrastructure and technology company. According to Binance, the stablecoin was issued and managed by Paxos, and the crypto exchange only licenses the token’s brand.
US Government Crackdown on Crypto Gathers Steam
The latest action by the NY regulator highlights that the US government is not likely to stop cracking down on the embattled crypto sector any time soon. The SEC, well known for its long-standing legal battle against XRP issuer Ripple, said it will sue Paxos for breaching investor protection laws.
Earlier this month, the securities regulator charged the crypto exchange Kraken with violating US securities law with its staking service. Kraken eventually cracked under pressure and has agreed to shut down its staking service for US customers and pay $30 million in disgorgement.
Coinbase CEO Brian Armstrong said last week that the SEC might be plotting to ban crypto staking for retail investors in the US entirely. If true, it would be a “terrible path” for the country to take, Armstrong added.
Do you think the government crackdown on crypto will significantly affect crypto market growth in the US? Let us know in the comments below.