Paxos to Stop Issuing BUSD. Crypto Reacts
- Crypto users believe the situation with Paxos is an attack against the crypto industry.
- US regulators argue that stablecoins such as BUSD qualify as securities.
- Only last week, the SEC forced Kraken to shut down its staking service in the US after claiming staking services violated securities law.
Blockchain company Paxos will stop issuing new Binance USD (BUSD) stablecoins following a recent probe by New York regulators. Paxos announced on Monday, February 13, that it would end its partnership with Binance for the BUSD stablecoin.
Reports emerged early Monday morning that the New York Department of Financial Services (NYDFS) had ordered Paxos Trust to stop issuing the US dollar-pegged BUSD. The news came shortly after the US Securities and Exchange Commission (SEC) claimed BUSD was an unregistered security.
Paxos said it would stop minting BUSD on February 21 and would follow the NYDFS’ directives. The blockchain infrastructure company noted that all existing BUSD tokens will be fully backed and redeemable through Paxos Trust until “at least February 2024.”
In addition, the firm announced 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 regulated US dollar-backed stablecoin also issued by Paxos Trust.”
The firm said in an announcement,
This action does not impact our ability to continue serving new or existing customers, our continued dedication to grow our staff, or fund our business objectives. Paxos remains committed to becoming the global leader in the blockchain tokenization infrastructure.
Referring to public transparency reports, Paxos further stated that Paxos Trust is a regulated organization that is supervised by the NYDFS and audited by a top-four accounting firm. The company noted that it will rely on its regulatory capital to operate the USDP and its gold-backed stablecoin Pax Gold (PAXG).
On Monday, the CEO of Binance, Changpeng Zhao, also posted on Twitter to say that Paxos had told the exchange that NYDFS had instructed them to stop issuing new BUSD. The CEO emphasized that Paxos issues and manages the stablecoin, suggesting that there are no problems between Binance and regulators.
US Regulators Increase Pressure on Crypto Firms
The BUSD situation becomes the latest eyebrow-raising event between US regulators and the cryptocurrency industry. Last week, the SEC ruled that cryptocurrency staking services are in violation of securities law, causing Kraken to completely discontinue its staking offering. Coinbase claims that its staking products are not securities and is willing to go to court to defend this stance.
The SEC’s action against Ripple, the company behind the XRP token, has brought the long-running securities argument in the cryptocurrency market to the forefront. The case has not yet been resolved. But the struggle to define security has persisted. In general, a financial investment in a business with the assumption that a profit will be made by someone other than the investor is regarded as a security.
However, given that stablecoins are a well-liked entry point for individuals entering the cryptocurrency space for the first time, the security claims against a stablecoin could pose a significant obstacle to the industry.
Several members of the cryptocurrency community flocked to Twitter to share their opinions on the matter as Paxos comes under regulatory scrutiny on several fronts. Various ideas on the claims that BUSD is an unregistered security have been put out by members of the cryptocurrency community, ranging from dismissing the matter as “FUD” to labeling it an attack on the Binance exchange.
Some crypto experts dismissed the case against stablecoins, with crypto analyst Miles Deutscher arguing that stablecoins do not pass the Howey test. Miles argued that “no one has ever had “the expectation of profit” when buying $BUSD.”
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