Paxos, a blockchain infrastructure platform has scored a major relief after the SEC’s investigation cleared it of any wrongdoing and concluded that BUSD, a Binance-based stablecoin, is not a security. As per the official press release, the regulator sent a notice dated July 9, 2024, stating that it won’t pursue against the firm in the investigation of Binance USD, setting a new precedent for the stability and regulation of stablecoins in the cryptocurrency market.
The dollar-backed stablecoin issued by Paxos was the third biggest stablecoin after Tether’s USDT and Circle’s USD. In 2019, the firm teamed up with leading crypto exchange Binance and rolled out the stablecoin, which was approved by the New York State Department of Financial Services NYDFS.
At the time, Binance’s former CEO Changpeng Zhao a.k.a CZ assured that the trading platform licensed the Binance brand to Paxos, and BUSD was “wholly owned and managed by Paxos.” But everything changed when the U.S. Securities and Exchange Commission issued a Wells notice to the firm alleging that BUSD is unregistered security.
A Wells notice is a letter the regulator sends to inform entities of planned enforcement action. The recipient firm has a deadline of 30 days to react with a legal brief known as a Wells submission, in which it can explain why charges shouldn’t be pursued against potential defendants.
Subsequently, the NYDFS issued a directive ordering Paxos to halt creating new BUSD, citing particular outstanding problems with Paxos’ management of its BUSD partnership with Binance. As a result of the regulatory pressure, the firm decided to cut ties with Binance and announced that they are working with the SEC to come up with a reasonable solution.
USD-Backed Stablecoins Set to Transform Financial System-Paxos
Following the latest win, Paxos released a statement stating that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified. It is further hoped that the development will unlock a new wave of stablecoin adoption by leading global enterprises.
Well-designed stablecoins with strong consumer protections – like those issued by Paxos – will transform the financial system in payments, settlement, and remittance use cases. This transformative technology will make the financial system more stable, accessible, and transparent.
