On February 21, Paxos will cease issuing new Binance USD (BUSD) tokens as directed by the New York Department of Financial Services.[0] This decision comes as the Securities & Exchange Commission (SEC) is considering taking action against the Paxos-issued cryptocurrency, alleging that it is an unregistered security.
Paxos ensures that BUSD tokens issued by Paxos Trust are always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts.[1] All funds are safe and fully covered by reserves in their banks.[2] In addition, Paxos has committed to continue supporting BUSD tokens and will remain redeemable to onboarded customers through at least February 2024.[2] Customers have the option to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP) – another regulated US dollar-backed stablecoin issued by Paxos Trust.[3]
In response to this news, Binance has minted nearly $50 million worth of TrueUSD (TUSD).[4] This stablecoin is pegged to the US dollar, and is the sixth largest stablecoin in the market with a circulation of $973 million.[2] Additionally, Binance CEO Changpeng Zhao (CZ) has warned of “profound impacts” on the crypto industry if BUSD is ruled as a security.[5]
This clampdown on the digital assets sector follows the SEC’s enforcement action against Kraken – another crypto exchange – for alleged unregistered offering and sale, in connection with Kraken’s crypto staking platform. In response, Binance briefly halted US dollar transfers.[3]
The SEC’s Wells notice to Paxos suggests that the regulator is of the view that BUSD is a security and that Paxos should have registered the offering of BUSD under the federal securities laws.[6] However, Paxos has stated that it “categorically disagrees” with the SEC on this matter and is “prepared to vigorously litigate if necessary.
0. “Crypto Takedown Explained” The Defiant – DeFi News, 16 Feb. 2023, https://thedefiant.io/crypto-takedown-explained
1. “Paxos Will Halt Minting New BUSD Tokens” PR Newswire, 13 Feb. 2023, https://www.prnewswire.com/news-releases/paxos-will-halt-minting-new-busd-tokens-301744964.html
2. “Stablecoin issuer Paxos ordered to halt creation for Binance USD” AOL, 13 Feb. 2023, https://www.aol.com/stablecoin-issuer-paxos-ordered-halt-134410690.html
3. “US regulator orders crypto firm to stop minting Binance stablecoin” CNN, 15 Feb. 2023, https://www.cnn.com/2023/02/14/investing/paxos-binance-busd-halt-order-us-intl-hnk/index.html
4. “Binance mints 50M TrueUSD days after Paxos ordered stop issuing BUSD” Cointelegraph, 17 Feb. 2023, https://cointelegraph.com/news/binance-mints-50m-trueusd-days-after-paxos-ordered-stop-issuing-busd
5. “SEC Clampdown Has Crypto Space Abuzz, Pantera Capital Says We’re in Bull Market, and Much More — Week in …” Bitcoin News, 19 Feb. 2023, https://news.bitcoin.com/sec-clampdown-has-crypto-space-abuzz-pantera-capital-says-were-in-bull-market-and-much-more-week-in-review
6. “Crypto firm Paxos to face SEC charges, ordered to stop minting Binance stablecoin” CNBC, 13 Feb. 2023, https://www.cnbc.com/2023/02/13/paxos-ordered-to-cease-minting-binance-stablecoin-by-new-york-regulator.html