According to reports on Feb. 12 citing ‘people familiar with the matter,’ the SEC plans to take action against Paxos over the Binance stablecoin, BUSD.
The WSJ report stated that the financial regulator issued a letter to Paxos, known as a Wells notice, to inform it of possible enforcement action. The Wells notice enables companies to respond to the SEC to explain why the agency shouldn’t proceed with legal action. It is not a final declaration of enforcement action.
The SEC is making the same allegations that it always does with crypto companies – selling unregistered securities, which it asserts BUSD is. Furthermore, the agency has yet to target a large stablecoin issuer but is broadening its scope with this latest salvo.
Is BUSD a Security?
Paxos partnered with Binance in 2019 to launch the dollar-pegged exchange-branded stablecoin, which is now the world’s third-largest.
The crypto community suggested that it was a swipe at Binance since the asset is obviously a stablecoin, not a security.
The SEC claims that BUSD is an unregistered security and is suing it’s issuer Paxos 🚩
To be considered a security, the Howey Test is used… I don’t think BUSD meets the criteria, it’s a damn stablecoin!?
Seems more like a shot at Binance, than anything else. pic.twitter.com/9sAuys5GY7
— tedtalksmacro (@tedtalksmacro) February 13, 2023
The SEC did not specify whether it had an issue with the company minting the coin or Paxos’ listing BUSD.
Last week, CryptoPotato reported that Paxos was under investigation, however, the firm denied that it was asked to withdraw its application for a national trust bank charter from the OCC.
SEC Chairman Gary Gensler has previously commented that stablecoins can resemble bank deposits or money-market mutual funds, but now he appears to be lumping them in with securities that are akin to company stocks.
Last week the SEC came down hard on Kraken, also accusing it of selling unregistered securities through its staking services. The U.S. crypto exchange settled on $30 million and pulled the plug on its staking products.
Industry leaders have warned that the SEC is trying to ban staking for U.S. retail investors which will push services and trade overseas (as it did with FTX).
Stablecoin Ecosystem Outlook
The current stablecoin market capitalization is $137 billion, which represents 13% of the entire crypto market cap.
Tether (USDT) and Circle (USDC) command the lion’s share of the market, with a combined share of around 80%.
Binance USD is the third largest stablecoin, with $16.1 billion in circulation and a market share of 12%. Paxos has its own stablecoin called the Pax Dollar (USDP), and it has a supply of $896 million, according to CoinGecko.