The Securities and Exchange Commission (SEC) has been quite in action since the start of the year for the regulatory oversight of cryptocurrencies. There are multiple aspects and offering of the crypto market which is currently under the radar of the financial watchdog. Staking and Stablecoins are at top of the list for regulations through enforcement.
In its latest regulatory action, SEC issued a wells notice to Paxos Trust in which they alleged that Binance USD is an unregistered security. For those who don’t know the association of Binance USD (BUSD) with Paxos, the stablecoin is issued in partnership with Paxos Trust Company. It is backed by reserves held in fiat cash and U.S. treasury bills.
The New York Department of Financial Services (NYDFS) has ordered the trust company to stop the issuance of Binance USD. The issuance by the department was made beside the fact that the official website of Paxos mentions that both Paxos and BUSD are approved and regulated by NYDFS.
What’s next for Paxos Trust Company?
According to Investopedia, after receiving a Wells Notice, the accused has 30 days to respond via a legal brief known as a Wells Submission, which allows them to argue why the charges should not be brought against the prospective defendants. The blockchain infrastructure platform has also announced that it will end its relationship with Binance for the stablecoin and stop minting new BUSD tokens.
Paxos stressed that all existing BUSD tokens will be fully backed and redeemable via Paxos Trust Company until “at least February 2024.” Customers will be able to redeem their funds in US dollars and convert their BUSD tokens to Pax Dollar, another stablecoin issued by Paxos (USDP). It also emphasized that the trust is a regulated institution overseen by the NYDFS and audited by a top-four accounting firm, referring to public transparency reports.
In regards to the Wells Notice received by Paxos, in a statement, the company says it “categorically disagrees” with the SEC that has described Binance USD as a security. The company will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary, the statement added.
USD Coin Issuer Circle Also Under Radar?
It was also rumoured that USD Coin issuer Circle has also received a “Wells Notice” from the SEC. Fox Business Reported Eleanor Terrett claimed that Circle had been ordered by the SEC to cease the sale of USDC due to the stablecoin being an unregistered security. However, the rumour was completely denied by Dante Disparte, chief strategy officer and head of global policy at Circle Pay. In response to the denial, Terrett mentioned she had considered the word of several trusted sources and apologized for spreading the rumour.
Regulatory Landscape of Stablecoins in the U.S.
It’s no denying that the regulatory landscape for stablecoins as well as the crypto market as a whole is currently going through strong scepticism by the regulators and government authorities of the United States. This month, the SEC has also enforced a halt on the staking program provided by Kraken and a lawsuit against a former Coinbase employee on the accusation of insider trading has also come to light.
Binance CEO Changpeng Zhao (CZ) provided a glimpse into the repercussions of regulatory action in the US. He mentioned that the industry will probably start using euro, yen or Singapore dollar-based stablecoins in the future, reducing the dependency upon United States dollar-based stablecoins. He also mentioned that algorithmic stablecoins can also play a significant role in the crypto ecosystem going forward. However, there are still inherent risks associated with them which is not the case with fiat-backed stablecoins.