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SEC clears Paxos, rules that BUSD is not a security

source-logo  cryptopolitan.com 11 July 2024 11:57, UTC

The SEC has decided not to take enforcement action against Paxos over its BUSD stablecoin. This decision came over a year after the SEC sent Paxos a Wells notice, and it was through Jorge Tenreiro, the acting chief of the crypto assets and cyber unit.

The decision also follows a small defeat for the SEC in a lawsuit against Binance. Congress is still not moving forward with legislation to regulate the crypto industry, making this ruling a big win for stablecoins.

Walter Hessert, the head of strategy at Paxos, expressed relief, saying:

“It’s what we expected all along, and it really should create, hopefully, more certainty in the market among what we see as a growing number of large enterprises.”

Paxos launched BUSD in partnership with Binance in 2019. Although BUSD never surpassed USDT and USDC, it is still a big player thanks to its integration with the Binance ecosystem.

The SEC, however, viewed BUSD differently. They argued in a lawsuit against Binance that BUSD was an investment contract and therefore a security.

This was because it earned profits through its reserves for both Binance and Paxos, which were then passed on to Binance users as yields.

The SEC informed Paxos of this view in last year with the Wells notice. At that time, Paxos disagreed, stating that BUSD was backed 1:1 with dollar reserves. They did not elaborate on the profits generated by the reserves.

The SEC’s move against Paxos shocked the entire industry. Stablecoins are in a regulatory gray area, but many argue that they do not have the expectation of profit, a key factor in determining securities.

The SEC responded to a freedom-of-information request by confirming that the investigation was “active and ongoing” as of July 3. However, the agency’s stance changed after a federal judge sided with Binance on June 28.

The judge ruled that the sales of BUSD did not constitute a securities offering. Hessert noted that the Wells notice had impacted Paxos’ ability to partner with new companies, including PayPal.

“It definitely will accelerate some really exciting enterprise conversations,” he said.

cryptopolitan.com