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Paxos Trust Company — the issuer of Binance’s stablecoin BUSD — is in talks with the U.S. Securities and Exchange Commission (SEC) after it told Paxos it should have registered BUSD as a security.

Paxos CEO Charles Cascarilla confirmed in an internal email sent on Saturday to Paxos employees that the firm is engaged in “constructive discussions” with the SEC. He noted that if necessary, Paxos would defend its position that BUSD is not a security through litigation.

In response to a consumer alert from New York Department of Financial Services (NYDFS) on February 13th, Paxos announced it would stop issuing new BUSD from February 21st, 2023. However, the firm has confirmed it will continue to support and redeem the tokens until at least February 2024.

Paxos is also in the process of applying for a clearing agency license with the SEC and a national trust bank charter with the U.S. Office of the Comptroller of the Currency (OCC).

Stablecoins like BUSD have become a key element of the crypto economy, used for trading between volatile tokens like bitcoin and as a means to protect savings against inflation in some emerging economies.

The SEC’s Stance on Paxos — the Binance Stablecoin Issuer

The SEC has taken a stance on stablecoins, issuing a notice to Paxos that the regulator is considering recommending an action alleging that Binance USD (BUSD) is a security. This suggests Paxos should have registered the offering of BUSD under federal securities laws.

Further, the SEC is using the Howey Test to determine whether or not stablecoins are securities or investment contracts. This move is being watched closely as it could have major implications for the $137 billion market, and if the SEC begins an official proceeding, it could have huge implications for all stablecoins, including tether and USDC. The SEC has not yet taken official action, but its actions are being closely monitored.

The SEC has been scrutinizing the use of stablecoins since 2021 when it issued a notice to Paxos regarding its Binance USD (BUSD) stablecoin. The SEC is questioning whether stablecoins such as BUSD are securities and whether they should have been registered under federal securities laws.

The SEC may require all stablecoin issuers to register and accept more stringent regulations. The SEC is also looking into other issues, such as money laundering and insider trading, as evidenced by its investigation into Binance. It is likely that the SEC may come out with specific charges and rulings in the near future, which can significantly impact the entire stablecoin industry.

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Sources

  • Kharpal, A. (2023, February 20). The SEC has a stablecoin firm in its sights – and it could shake up the whole $137 billion market. CNBC. Retrieved February 21, 2023, from https://www.cnbc.com/2023/02/20/how-the-sec-and-paxos-busd-fight-could-impact-the-stablecoin-market.html
  • Person, & Lang, H. (2023, February 21). Paxos in talks with U.S. SEC over Binance stablecoin- internal email. Reuters. Retrieved February 21, 2023, from https://www.reuters.com/business/finance/paxos-engaged-constructive-discussions-with-us-sec-over-binance-stablecoin-2023-02-21/