SEC Drops Paxos Probe for BUSD Stablecoin

Paxos, the blockchain infrastructure platform behind the Binance USD (BUSD) stablecoin, announced Thursday that regulators have dropped their investigation into the company over its dollar-pegged tokens.

The result represents a major legal victory for crypto in general, where a thick fog has surrounded the legal classification and regulatory treatment of stablecoins.

Paxos wins the SEC

After launching its investigation into BUSD in February 2023, the Securities and Exchange Commission (SEC) sent a formal termination notice to Paxos on July 9 indicating that it would not take further enforcement action.

“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under the federal securities laws and that Wells’ notice was neither warranted nor warranted,” Paxos wrote in a press release Thursday. “We believe this development will unlock a new wave of stablecoin adoption by the world’s leading businesses.”

Stablecoins are blockchain-based tokens that are pegged in value to assets that are relatively stable in price. The most common assets used for this are generally government-issued currencies, most commonly the US dollar, as was the case with the BUSD.

Beginning its investigation early last year, the SEC ordered Paxos to stop issuing more tokens and allow a smooth exchange process for current holders that will see it end operations.

BUSD was the third largest stablecoin at the time alongside Tether (USDT) and Circle USD (USDC), and it quickly gained market share thanks to Binance’s efforts to generate liquidity around it.

Binance was later forced to exit the asset, and since early 2023, Tether’s stablecoin dominance has exploded to 69.19% of the entire market, according to DefiLlama.

Implications for the crypto industry

The outcome of the SEC’s investigation – and potential lawsuit – against Paxos and BUSD has important implications for crypto in general. Both USDT and USDC operate very similarly to how BUSD operates, meaning a court ruling that BUSD was an unregistered security could have led Tether and Circle to a similar fate.

Rostin Benham, chairman of the Commodities and Futures Trading Commission (CFTC), has done so before witnessed that his agency’s analysis found the USDT to be a commodity rather than a security.

“It was clear to our execution team and the committee that the Tether stablecoin was a commodity and that we needed to move, and quickly, to police that market,” he said at the time.

It is also instrumental in other high-profile lawsuits between the SEC and major crypto exchanges. Binance, for example, is accused of issuing and trading several unregistered securities on its platform, one of which was allegedly BUSD.

SPECIAL OFFER (Sponsored) Binance Free $600 (Exclusive to CryptoPotato): Use this link to register a new account and receive an exclusive welcome offer of $600 to Binance (full details).

2024 LIMITED OFFER on BYDFi Exchange – Up to $2888 Welcome Reward, Use this link to register and open a 100 USDT-M position for free!