As an experienced financial analyst, I believe the SEC’s decision to terminate its investigation into Binance USD (BUSD) is a significant victory for Paxos and the stablecoin sector as a whole. The SEC’s initial position that BUSD was an investment contract and, therefore, an unregistered security under federal securities laws, raised concerns within the crypto community and led to a decline in the token’s market cap.
Paxos, the stablecoin issuer, revealed that the US Securities and Exchange Commission (SEC) has suspended its probe into Binance USD (BUSD), the stablecoin associated with Binance.
On July 9th, the SEC issued a formal termination notice to Paxos, concluding an investigation that sparked debate within the crypto sector. In response, on July 11th, Paxos restated its position that its dollar-backed stablecoins do not fall under the category of securities according to U.S. securities laws. The New York-based firm expressed disappointment and disagreement with the Wells notice, deeming it unnecessary and unjustified.
As a security analyst at Paxos, I can assure you that our top priority has always been, and will continue to be, the protection of customer assets. Our stablecoins, which are issued by Paxos, are backed one-for-one with reserves denominated in US dollars. These reserves are held separately and in accounts that are shielded from bankruptcy proceedings.
As a crypto investor, I’ve observed that Paxos made headlines when they teamed up with Binance in September 2019 to introduce BUSD. This stablecoin gained significant traction due to its seamless integration within the Binance platform. Nevertheless, despite its popularity, it failed to outshine established competitors such as Tether (USDT) and USDC.
In February 2023, the Securities and Exchange Commission (SEC) initiated an investigation into Paxos following a Wells notice they received from the regulatory body. The SEC’s concern centered around Binance USD (BUSD), which they believed functioned as an investment contract due to its profit-generating reserves that benefited both Binance and Paxos. As a result, the SEC held the view that BUSD constituted an unregistered security and that Paxos had allegedly infringed upon federal securities laws.
Following the SEC’s announcement, the market value of BUSD took a downturn. In February 2023, its market value surpassed $15 billion; however, it now hovers around $69 million.
“At that point in time, I, Paxos, firmly rejected the SEC staff’s assessment that BUSD (Binance USD) qualifies as a security under U.S. securities laws.”
SEC’s Legal Failures
The SEC’s decision to terminate the investigation follows their unsuccessful legal efforts in two notable court cases. Last July, a federal judge determined that XRP was not classified as a security during programmatic sales on exchanges in the case of SEC versus Ripple. In June 2024, another judge referenced this ruling while dismissing similar claims against Binance related to BUSD.
The ending of the BUSD investigation is considered a major victory for the stablecoin industry. According to Walter Hessert, Paxos’ head of strategy, speaking with Fortune, “the conclusion of this probe officially brings significant relief to us. It was what we had anticipated all along, and it should ideally foster greater confidence in the market among an expanding cohort of major corporations.”
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2024-07-12 11:56