SEC Investigates Paxos Over BUSD Issuance; Impact on Crypto Industry Remains Unclear

Paxos, the largest issuer of regulated stablecoins, has announced it will end its relationship with Binance and cease issuance of new Binance USD (BUSD) stablecoin tokens starting February 21, following regulatory scrutiny from the New York Department of Financial Services (NYDFS).[0] The Wall Street Journal (WSJ) also reported that the SEC served Paxos with a Wells Notice for violating investor protection laws by issuing an unregistered security.

On Feb. 13, the NYDFS ordered Paxos to halt the issuance of BUSD, and the same day the United States Securities and Exchange Commission (SEC) issued a Wells notice to Paxos, alleging that BUSD is an unregistered security. Paxos responded with a statement saying, “Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws.”[1]

PayPal has reportedly paused its stablecoin project due to the heightened scrutiny around the cryptocurrency industry.[2] The SEC’s move came shortly after Paxos was ordered by the NYDFS to stop minting BUSD tokens.[3] This was followed by a settlement with Kraken to shut down its crypto-staking service in the U.S.

Stablecoins are tokens issued by an entity and their values are tied to a fiat currency, such as the U.S. Dollar.[4] They are backed by real-world reserve assets, such as bonds and cash.[5] According to a self-reported reserves attestation from February 10, Paxos holds all of the BUSD’s assets in short duration U.S. Treasuries.[6]

Binance CEO Zhao said that if BUSD is ruled to be a security, “it will have profound impacts on how the crypto industry will develop in the jurisdictions where it is ruled as such.”[0] New and existing Paxos customers will still be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a regulated US dollar-backed stablecoin issued by Paxos Trust.[7]

The SEC’s move has caused concerns that other major players, particularly Coinbase Global Inc (NASDAQ:COIN) and Binance U.S., could be targeted next. [8]

0. “Binance and Paxos Caught up in Crypto Regulatory Crackdown” Investopedia, 13 Feb. 2023,

1. “Circle blew the whistle on Binance reserves to NYDFS: Report” Cointelegraph, 13 Feb. 2023,

2. “PayPal Pauses Stablecoin Project Amid Paxos Regulatory Scrutiny”, 12 Feb. 2023,

3. “Binance’s native token falls sharply as regulatory concerns mount By”, 14 Feb. 2023,

4. “Binance Plans to ‘Move Away’ From Its Stablecoin After Regulators Slam BUSD Issuer” Gizmodo, 13 Feb. 2023,

5. “Crypto markets on edge as U.S. regulatory crackdown on industry intensifies” CNBC, 14 Feb. 2023,

6. “Stablecoin issuer Paxos ordered to halt creation for Binance USD” Yahoo News, 13 Feb. 2023,

7. “US regulator orders crypto firm to stop minting Binance stablecoin” CNN, 14 Feb. 2023,

8. “SEC lawsuit against Paxos over BUSD baffles crypto community” Cointelegraph, 13 Feb. 2023,