decrypt.co
The SEC is reportedly taking aim at the owner and issuer of the world’s third-largest stablecoin, Binance USD.
Per the Wall Street Journal, the U.S. Securities and Exchange Commission plans to sue crypto brokerage firm Paxos Trust for issuing and listing the BUSD stablecoin without registering it as a security.
In a press release shared with Decrypt, Paxos confirmed that it was halting the minting of BUSD and would “end its relationship with Binance” for the stablecoin. It also made assurances that existing BUSD tokens are fully backed and will be redeemable for at least a year.
Decrypt has not been able to independently verify whether or not the SEC is preparing legal action against Paxos.
#BUSD. A thread. 1/8
In summary, BUSD is issued and redeemed by Paxos. And funds are #SAFU!
— CZ 🔶 Binance (@cz_binance) February 13, 2023
However, tweeting earlier today, Binance founder and CEO CZ wrote that he was informed by Paxos that the New York Department of Financial Services—an agency Paxos is registered with and regulated by—has directed the company to cease issuing BUSD.
Paxos Trust has owned and operated the BUSD stablecoin business since 2019, when it entered into a licensing agreement with Binance, the world’s largest crypto exchange, to use its name and brand.
According to CoinGecko, BUSD has a market cap of over $16 billion—due in large part to its prominence on Binance’s exchange. However, as it is a stablecoin, its market cap and trading volumes do not affect the value of the product, at least in theory.
BUSD and Paxos
Interestingly, Paxos is only being directed to shut down its BUSD stablecoin, which customers can redeem for cash or convert to Pax Dollar (USDP), “a regulated US dollar-backed stablecoin also issued by Paxos Trust.”
Paxos made no mention of the SEC or any potential lawsuit in the statement released today but included six instances of the word “regulated.”
Binance has taken a hit from today’s news, with the crypto exchange facing a loss in licensing fees and the eventual decline of Binance USD’s marketing power. Binance’s non-stablecoin token, Binance Coin (BNB) dropped by 5% following the news, according to CoinGecko.
SEC ramps up regulatory efforts
Over the past few months, the Securites and Exchange Commission has become increasingly aggressive in its approach toward the crypto industry.
Just last week, crypto exchange Kraken reached a $30 million settlement with the SEC over its staking service offered to U.S. customers. And SEC chair Gary Gensler has warned crypto companies that the “runway is getting awfully short” regarding compliance.
Gensler’s enthusiasm for the regulator’s crypto crackdown isn’t shared by all his colleagues, however. In a dissent to last week’s settlement with Kraken, SEC commissioner Hester Peirce wrote that the regulators “do not initiate a public process to develop a workable registration process that provides valuable information to investors, [we] just shut it down.”