U.S. SEC Drops Charges Against Paxos Over BUSD Stablecoin

After a year and five months, the United States Securities and Exchange Commission (SEC) has dropped charges against the stablecoin issuer Paxos over claims of unregistered securities sales. This change of heart implies that the Binance-branded stablecoin, BUSD, can freely be offered to crypto investors.

Binance USD (BUSD) is a stablecoin issued and developed in 2019 by Paxos in collaboration with the leading crypto exchange, Binance. Like most stablecoins, BUSD is pegged 1:1 to the U.S. dollar.

SEC vs. Paxos

The regulatory tussle dates back to February 2023, when the American financial agency issued a Wells notice to Paxos, a step towards enforcement actions against the firm. The SEC argued that BUSD is a security, and Paxos unlawfully offered the stablecoin to investors without registering them with the regulatory watchdog.

Around the same time, the New York Department of Financial Services (NYDFS) ordered Paxos to halt BUSD issuance to investors, and the stablecoin issuer complied.

In the latest press release, Paxos revealed that it received a “formal termination notice” from the SEC and added that no enforcement action will occur. Commenting on the decision, Paxos wrote:

Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified. We are proud of our relentless advocacy for stable-value digital assets and that the SEC staff determined it will not bring enforcement action against Paxos in connection with BUSD.

The SEC’s latest decision no longer classifies BUSD as a security. The financial agency has recently shifted from its strict stance on cryptocurrencies being securities to a tolerant outlook. An example is the SEC’s recent endorsement of the Ethereum-focused exchange-traded fund (ETF).

Impact on BUSD

Before the regulatory crackdown, Binance embraced BUSD as its flagship stablecoin. However, the legal woes caused the exchange to explore other stablecoins like TUSD. Other crypto exchanges followed a similar path. For example, Coinbase delisted the stablecoin in March 2023.

These actions took a toll on BUSD’s market performance. Its market capitalization dropped significantly from around $15 billion in February 2023 to $69.5 million at the time of writing. It remains uncertain whether the stablecoin will recover from its losses.