Paxos was ordered to stop minting Binance USD (BUSD) by the New York Department of Financial Services.
The order coincided with the SEC’s plans to sue Paxos for selling unregistered securities in BUSD.
CEO of the crypto exchange, Changpeng Zhao, noted that his company would review other projects to protect users from “undue harm”.
The news came just days after the SEC clamped down on Kraken crypto exchange over its staking services in the U.S.
Paxos was ordered to stop minting Binance USD (BUSD) by the New York Department of Financial Services (NYDFS), the Wall Street Journal reported on Monday amid increased regulatory crackdown efforts on the crypto industry.
The NYDFS order followed an investigation on Paxos and a looming lawsuit from the Securities and Exchange Commission (SEC). Indeed, the SEC alleged that BUSD which is issued and managed by Paxos counts as a security token. The SEC claimed that Paxos violated investor protection laws by selling unregistered securities and suggested plans to sue the New York-regulated trust company.
Responding to the news, Binance CEO Changpeng Zhao published a thread clarifying key aspects of the matter. First, Zhao noted that BUSD is wholly owned, managed, and issued by Paxos. CZ added BUSD redemptions will continue and that all user funds are “safu”, a term interchangeable with “safe” in the digital asset ecosystem.
CZ acknowledged that Binance was informed by Paxos of the NYDFS order regarding BUSD. The crypto billionaire claimed no knowledge of the SEC lawsuit against Paxos, per Monday’s thread.
The price of Binance Coin (BNB), not to be confused with BUSD, dipped some 5% on the news. BNB exchanged hands around $294 dollars across available markets.
SEC Crackdown On Binance USD Could Spell Trouble For Crypto Stablecoins
The SEC’s decision to label BUSD as security arguably sets a dangerous precedent for other stablecoin tokens in crypto. As observed by crypto analyst Miles Deutscher amid the Paxos-BUSD debacle, the commission considers four (4) aspects based on the Howey test when classifying an asset as a security. Deutscher argued that BUSD does not meet the Howey test criteria, a point of view that CZ agreed with.
BUSD is the third largest stablecoin at the break of the news, behind only the largest stablecoin Tether (USDT), and the second largest stablecoin USD Coin (USDC) from publicly traded payments company Circle.
All three tokens leverage a similar model as they are pegged to the U.S. dollar and backed in a 1:1 ratio. These tokens leverage traditional financial assets like bonds, fiat cash in banks, and U.S. treasuries as reserves.
BUSD is also a significant tool on the Binance exchange used for settling transaction fees. The token also serves as the primary trading pair on Binance and a large amount of BUSD’s circulating supply sits on the platform.
It’s unclear if the SEC plans to extend its regulatory enforcement actions to Tether’s and Circle’s tokens. Recently, the commission also turned its gaze toward CeFi staking services and reached a settlement with crypto exchange Kraken.