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SEC Going After Stablecoins? Hits Paxos With Charges

The crypto community has been flooded with FUD ahead of the CPI release.

The Securities and Exchange Commission (SEC) announced on Monday that it has filed a lawsuit against Paxos Trust, the issuer of Binance USD (BUSD), alleging the stablecoin is an unregistered security.

Specifically, the agency sent a wells notice to Paxos, notifying that it would take enforcement action against the entity.

Paxos issued the following statement on February 13. Read the full statement here: https://t.co/jbfcBAiCgf pic.twitter.com/T7k80QtKyX

— Paxos (@PaxosGlobal) February 13, 2023

SEC Goes After Stablecoins

After receiving SEC’s wells notice, Paxos has around two weeks to provide a wells submission, a written or oral explanation for why SEC’s move is wrong.

Also on the same day, Paxos had to halt minting BUSD following the command of the New York Department of Financial Services (NYDFS).

PAXOS is currently in charge of three currencies: USDP, PAXG (Pax Gold), and BUSD. CZ noted shortly after the announcement that BUSD is a PAXOS stablecoin branded as Binance; this is a joint work between Binance and PAXOS.

Because PAXOS is based in the United States, it must comply with the New York Department of Financial Services (NYDFS).

BUSD is Still Here

PAXOS will continue to facilitate the transfer of BUSD to USD but will not issue it anymore, implying that the capitalization of BUSD will only fall over time. Binance will continue to enable BUSD trading, however, the items will be adjusted if users move to another stablecoin.

SEC’s move has exploded the Twitter space, the common platform of crypto members.

Eleanor Terrett, Journalist and Producer at Fox Business Network, believes it is another “unilateral effort” between the SEC, the NYDFS, and the OCC (Office of the Comptroller of the Currency). She’s wary that those agencies will conduct similar acts within the next 2 or 3 weeks.

Insiders think SEC overstepped the border. Crypto analyst Miles Deutscher stated that the stablecoin BUSD was definitely not a security and it also failed to meet the Howey Test criteria.

He also voiced his disapproval of SEC Chairman Gary Gensler as Gensler seemed to constantly target the crypto sector. CEO of Binance, Changpeng Zhao (CZ), commented in agreement with Miles’ perspective.

Crypto expert Tedtalksmacro also disagreed with the SEC crackdown, arguing that BUSD would not be considered a security. The expert believed it was “a shot at Binance.”

Paxos is under the SEC’s investigation and no concrete result has yet been delivered. Paxos will meet the SEC in a closed-door meeting this Thursday.

The announcement that Paxos would no longer be minting BUSD had an immediate effect on the price of BNB, pushing the coin’s value close to reaching a monthly low for the first time.

If the court decides that BUSD is a security, then the cryptocurrency market is going to be significantly impacted by this decision.

SEC and security have been the headline for years. This is not the first time the SEC has targeted stablecoins and the crypto sector. In 2021, Circle – the issuer of USDC, was investigated by the agency.

According to a file sent to Circle at the time, the cause appears to be the launch of Circle Yield’s new product, which lets users holding USDC stablecoins generate profits.

XRP Case Ongoing

In addition, in December 2020, the year-long legal battle between Ripple and the SEC that has absorbed a lot of media interest is also relevant to the problem of XRP being offered as securities.

The case is expected to reach a final settlement this year.

SEC is making more use of the authority it has over the cryptocurrency market. Last week, rumors had it that the SEC would impose restrictions on staking.

Concerns amounted after Kraken settled with the SEC last week which will result in the company permanently ceasing staking in the United States and paying a fine of $30 million.

Following the imposition of the suspension, Gensler also deterred the crypto business in a public statement.

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