If some still doubted it, the American regulator is indeed on a crusade against the cryptocurrency industry since the beginning of 2023. This time, the company Paxos is the subject of an investigation by the SEC. The institution alleges that the BUSD stablecoin issued by Paxos is an unregistered titlebringing the latter into a slight depeg following massive withdrawals.
New week, but still the same debate concerning the qualification of certain crypto currencies as an unregistered title (security in American legal parlance). In a recent article, the Wall Street Journal explains that the SEC, the American financial policeman, informed Paxos “of a possible stock coercive for violation of investor protection laws “.
While Brian Armstrongthe CEO of Coinbase, explains that the SEC wants to ban cryptocurrency staking in the United States and that Kraken, a cryptocurrency platform, has had to pay a fine of $30 million and interrupt its staking program in the United States , this survey is a continuation of these decisions.
However, due to the proximity between Paxos and Binancethe SEC’s decision to prosecute the BUSD issuer could substantially weaken the entire cryptocurrency market. Indeed, the BUSD is currently 7th in terms of capitalization stock market according to the specialized site Coingecko.
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#BUSD. A-thread. 1/8
In summary, BUSD is issued and redeemed by Paxos. And funds are #SAFU!
— C.Z.
Binance (@cz_binance) February 13, 2023
Paxos is under investigation by the SEC
According to information collected by the WSJ from anonymous sources, the SEC sent in recent weeks a “Wells Notice” to Paxos. This letter is sent by the SEC to companies that will be investigated by the financial authority because of their activity considered suspicious.
Concretely, the SEC criticizes Paxos for having taken the decision, in collaboration with the platform of cryptocurrency Binance, to issue BUSD in 2019. According to the institution, the BUSD must be considered as a security. However, it is prohibited to issue such a security without prior authorization from the SEC.
Consequently, the institution accuses Paxos of having participated in the issue of an unregistered security and of having, consequently, violated investor protection laws “.
On another side, the New York Department of Financial Services (NYDFS) is also investigating Paxos. Thus, what looks like a coordinated attack between the two institutions against the company, also aims to ban “Paxos from issuing new BUSD”.
Paxos complies with NYDFS ban
Quickly after the press reports, Paxos announced that it would comply with the ban issued by the NYDFS to issue new BUSD. The company explains that “it will stop issuing BUSD as of February 21but that it will honor redemptions until at least February 2024.”
She adds that “new and existing Paxos customers will be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a stablecoin regulated and backed by the US dollar.
Binance in uncertainty after these investigations
Through its spokesperson, Binance explains that “BUSD is a product issued and owned by Paxos, with Binance licensing its trademark to the company for use. Paxos is regulated by the New York Department of Financial Services (NYDFS), BUSD is a stablecoin backed 1 to 1 “.
Therefore, “the stablecoins are an essential safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people around the world. We will continue to monitor the situation. Our global users have a wide range of currencies stable at their disposal “.
Beyond this information, essentially taken up by CZthe boss of Binance, in a thread on twitter, the latter explains that all funds are safe, but that the market capitalization of BUSD should inevitably decrease over time.
CZ considers BUSD not unregistered security
In conclusion of his speech, CZ denounces regulatory instability hanging over stablecoins. Furthermore, he explains that categorizing BUSD as a security would make very little sense given that a stablecoin cannot meet the different conditions of the Howey test.
Nevertheless, the use of the Howey test is not an essential condition to consider a security as being a transferable security. Thus, as Adam Cochran reminds us, “securities are part of a much broader category defined by the Securities Act of 1933”.
Therefore, the SEC could ignore the conditions of the Howey test and legitimately consider stablecoins as securities. According to him, the main argument that the SEC could raise is that stablecoins hold underlying treasury bills. However, this specificity would expose the holders to a security even without drawing any income from it.
Although this interpretation is controversial, it is nonetheless a legally viable possibility. In fact, the great debate around cryptocurrencies and securities is certainly only beginning.
The article BUSD depeg after SEC attack on Paxos and Binance appeared first on Corner Academy
