The New York Department of Financial Services (NYDFS) ordered The Paxos Trust Company (a blockchain infrastructure platform) to stop issuing their Binance-branded stablecoin, BUSD. This came following notice that the Securities and Exchanges Commission (SEC) is planning to sue Paxos for selling BUSD as an unregistered security. The SEC provided them with a wells notice to inform them that infractions had been discovered and that enforcement proceedings have been initiated against them. Paxos has 30 days to reply in the form of a ‘wells submission’ and tell them why legal action is unnecessary.
As a result of the notice, Paxos will end its relationship with Binance regarding the stablecoin and will stop minting more coins as of February 21st to comply with the NYDFS.
Paxos promised holders that the remaining tokens would remain fully backed until February 2024. Customers can exchange their funds for US dollars or their other stablecoin, USDP. The company went on to add:
“This action does not impact our ability to continue serving new or existing customers, our continued dedication to grow our staff, or fund our business objectives. Paxos remains committed to becoming the global leader in the blockchain tokenization infrastructure […].”
Binance CEO Changpeng “CZ” Zhao also chimed in to assure holders of their reserves, which multiple parties have audited. He also noted some things to expect while moving forward, such as the decrease in BUSD market cap over time and the need for “product adjustments .”Binance will need to consider an alternative token as they transition since BUSD was a leading trading pair for most of the tokens listed on the exchange. He understands that users will move to other stablecoins as he begins exploring non-U.S. dollar-based coins.
In conclusion, despite Paxos and CZ addressing the immediate concerns of holders, satisfying the SEC may be a lot more challenging. Paxos initially consented to the NYDFS, but they have recently indicated that they disagree with the SEC and will “vigorously litigate .”It will be interesting to see how Paxos counters the SEC’s accusations, especially since websites like cryptorank.io promote arbitrage trading of BUSD. One hopes they do not set a precedent that leaves the remaining stablecoins vulnerable. If the SEC is successful and decides to go after every stablecoin, we could be unprotected with no respite from market volatility. And, unfortunately, that takes the risk in the crypto space to a whole other level.
