Paxos, the issuer for Binance’s $BUSD stablecoin, has halted minting of the token at the directive of the New York Department of Financial Services (NYDFS). This move came shortly after news of potential legal action from the SEC against Paxos.
The intention behind the rumored legal action is due to the U.S government agency alleging that BUSD is an unregistered security. Following this, the NYDFS said it had instructed Paxos to put a stop to the minting of new BUSD tokens, to which Paxos complied and announced they will be ending their relationship with Binance for BUSD by 2024.
A press release by the Paxos read:
“All BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. Paxos has always prioritized the safety of its customers’ assets. BUSD will remain fully supported by Paxos and redeemable to onboarded customers through at least February 2024.”
Paxos, CZ, and others pushback
Despite Paxos acquiescing to the request, the firm has struck back by saying they “categorically disagree with the SEC staff because BUSD is not a security under the federal securities laws.”
Binance CEO, Changpeng Zhao (CZ), also waded in to echo the conclusion Paxos offered. CZ remarked that despite having no information regarding the lawsuit aside from public news articles, he agrees with the analysis made by crypto analyst, Miles Deutscher, who references the Howey Test criteria:
The SEC has labelled BUSD as an “unregistered security”, and is suing its issuer, Paxos.
But how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria.
— Miles Deutscher (@milesdeutscher) February 13, 2023
Previously, there has been much debate as to what constitutes a security, and this latest chapter of crypto regulation looks set to only muddy the waters further if the general consensus is anything to go by. Many crypto investors have joined Deutshcer in commenting on BUSD’s lack of potential gains as the point of contention:
The SEC just sued $BUSD stablecoin issuer Paxos…
Elon Musk was absolutely right about this corrupt institution👇 pic.twitter.com/qWo7vpjbBw
— Crypto Hub💡 (@CryptoHub210) February 13, 2023
As someone who's been holding bUSD for years waiting for the pump, I'm glad the SEC is finally taking action
— Jebus.eth (@jebus911) February 13, 2023
can a stablecoin be classed as a security?
Meanwhile, the crypto journalist, appropriately named @thecryptojourno, helps shed some light on all of this for the befuddled.
In his article, ‘So Why Exactly Is The US Govt Gunning For Binance? A Chainsaw Explainer’ – thecryptojourno (Tom Mitchelhill) explains “the grim reality of securities regulation, is that it’s unsurprisingly far more complex and tedious than meets the eye.” The fact that an asset lacks an expectation of profit is not an automatic absolution from coming under scrutiny.
Mitchellhill goes on to reference a thread by CEHV partner, Adam Cochran, who explores the counterargument for those citing the Howey Test as a get-out clause for BUSD.
This is what people don't realize.
Howey test = precedent for investment contracts.
"Securities" is a much broader category defined by the 1933 Securities Act.
Honestly, if the SEC wants to, with how vague the act is, its fairly easy to put anything under it. https://t.co/TbHKqO3zLD
— Adam Cochran (adamscochran.eth) (@adamscochran) February 13, 2023
The start of things to come?
Cochran mentioning that “If the SEC wants to, with how vague the act is, it’s fairly easy to put anything under it.” could signal further pain of this kind down the road, if that is to be believed.
This BUSD news comes only days after Kraken agreed to shut down its staking operations, after charges were brought against them by the SEC – likewise garnering much pushback from crypto users.
Kraken co-founder and CEO, Jesse Powell, responded by urging US Congress to “protect the domestic crypto industry and US consumers who will now be going offshore to obtain services no longer available in the US.”
Meanwhile, SEC Chair Gary Gensler, took the opportunity as a warning to others stating the settlement “should put everyone on notice in this marketplace.”
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