Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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SEC Drops BUSD Paxos Trust Investigation, No Enforcement
Enforcement | Jul 12, 2024
SEC Ends Investigation into Paxos Over Binance USD Token with No Enforcement Action Taken
The Securities and Exchange Commission (SEC) of the United States has finished its probe into Paxos Trust Company concerning the stablecoin Binance USD (BUSD) issuance and is not taking any enforcement action over BUSD.
Paxos statement as reported by WSJ:
“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified. We are proud of our relentless advocacy for stable-value digital assets and that the SEC staff determined it will not bring enforcement action against Paxos in connection with BUSD.”
Background
Since 2019, Paxos, a regulated blockchain infrastructure company, collaborated with Binance to issue a BUSD stablecoin which was authorized by the New York Department of Financial Services (NYDFS) and is fixed 1:1 to the US dollar.
The SEC warned Paxos in a Wells Notice at the beginning of 2023 that there may be enforcement action taken in response to BUSD's classification as an unregistered security. The NYDFS was compelled by this notice to direct Paxos to stop issuing new BUSD tokens, while stablecoin redemptions were still permitted.
See: Paxos International Launches Yield-Bearing USDL Stablecoin
In response to these regulatory demands, Paxos severed ties with Binance in respect to the issuance of BUSD. The business vowed to protect investors and guarantee that all BUSD tokens are entirely backed by US dollar reserves kept in FDIC-insured accounts.
Outlook
The NYDFS is still keeping an eye on Paxos's compliance and redemption procedures, but this case highlights how much regulatory attention is being paid to stablecoins and other digital assets. As seen by recent steps taken against Uniswap and Robinhood as well as the continuous investigation of Coinbase's staking services, the regulatory moves against Paxos are a part of a bigger trend. The crypto industry is likely to face ongoing regulatory challenges as authorities seek to establish clearer frameworks for digital assets.
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