Paxos, a leading regulated blockchain and tokenization infrastructure platform, has responded to the U.S. Securities and Exchange Commission over its issuance of Binance USD “BUSD” stablecoin.
In a Jan 13 blog, Paxos refuted claims by the SEC that BUSD is a security under federal securities laws. The response by Paxos comes after the SEC sent a Wells Notice to the firm earlier this month stating that it was considering recommending an action alleging that “BUSD is a security and that Paxos should have registered the offering of BUSD under the federal securities laws.”
According to Paxos, since the SEC Well notice pertained only to BUSD and there were no other allegations against it, it was ready to prove that BUSD was not a security.
“Paxos has always prioritized the safety of its customers’ assets…We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary,” the firm wrote.
BUSD is a Binance-branded stablecoin issued by Paxos. This New York-regulated firm also enjoys a provisional charter from the Office of the Comptroller of the Currency, a federal bank regulator. According to Paxos, the stablecoin is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. With a market cap of $16 billion, BUSD is also the 3rd largest stablecoin with about 90% of BUSD held on Binance.
The SEC is not the only regulator that is after Paxos for BUSD. On Monday, a spokesperson from the New York Department of Financial Services told Reuters that Paxos had “violated its obligations for tailored, periodic risk assessments and due diligence checks” leaving BUSD open to using by bad actors. The NYDFS ordered Paxos to halt its issuance of the stablecoin due to “unresolved issues” touching on its oversight relationship with Binance.
Paxos responded by announcing that it was immediately ceasing the issuance of new BUSD tokens, adding that it was “working in close coordination with the New York Department of Financial Services (NYDFS).”
Meanwhile, following the crackdown on Paxos, Changpeng Zhao “CZ”, the founder of Binance, noted in a thread of tweets that they would continue supporting BUSD for the foreseeable future, clarifying that the stablecoin is wholly owned and managed by Paxos.
He further noted that in the case courts rule that BUSD is a security, it will greatly impact how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.
“Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm,” he said.
