Binance USD (BUSD), the stablecoin issued by Paxos, is in the crosshairs of regulators in New York and the United States, facing increasing regulatory pressure.
In a release Recently, Paxos has confirmed that it will stop issuing the BUSD stablecoin starting next Tuesday, February 21. This cessation of the issuance of new BUSD by Paxos obeys an order from the New York Department of Financial Services or NYDFS, the state regulator.
BUSD, a US dollar-indexed stablecoin that launched in 2019 as part of a partnership between Paxos and Binance, has become the third largest stablecoin on the market with a current market capitalization of $ 15.720 million dollars, according to data from the cryptocurrency price monitoring platform CoinMarketCap.
Furthermore, Binance data shows that the BUSD in circulation is currently held by at least 6 million holders.
No more BUSD
Paxos is a blockchain infrastructure company regulated and supervised by the NYDFS. In his statement, he admits that he will end his relationship with Binance for the BUSD stablecoin, but that he will continue to manage the dollar reserves of this stable coin.
Likewise, Paxos points out that its clients will be able to exchange the BUSD stablecoin until at least February 2024.
According to The Wall Street Journal, the issuer of the Binance stablecoin received a notification document from the NYDFS in recent days, informing the company of the lawsuit against the BUSD stablecoin. New York regulators say Paxos has failed to conduct follow-up and due diligence on its relationship with Binance, leading to non-compliance with investor protection regulations.
In addition to this, it is believed that the Securities and Exchange Commission (SEC) could also initiate regulatory action against Paxos over BUSD, which you are labeling as an unregistered value.
The crypto community defends BUSD: It is not a security
Although the SEC has not filed a lawsuit against Paxos for the issuance of BUSD, several leaders in the crypto community have already spoken out about the regulator's consideration of the stablecoin as a value.
On his Twitter account, Miles Deutscher, cryptocurrency analyst, argued that BUSD does not meet the criteria to be considered a security under the Howey test, the test used by the US regulator to determine a transaction can be considered a security before the law. .
No one has ever had “the expectation of profit” when buying BUSDDeutscher highlighted.
Adam Cochrane of Synthetix tweeted that US securities law is vague, so the SEC could easily “put anything under it.”
Likewise, in response to Deutscher's tweet, Cochrane explained that Paxos has been purchasing US Treasuries with the money, so it could be treated as a type of security called a "Money Market Fund."
Stablecoins under regulatory scrutiny
The SEC's regulatory actions have been intensifying on companies in the crypto industry. In recent days, the financial regulator took action against Kraken to stop its cryptocurrency staking platform, under accusations of offering the service as an unregistered security in the country.
In relation to stablecoins, the SEC maintains that these stablecoins should be in a legal framework that regulates them. Furthermore, the SEC considers that the issuance of this type of coins should be exclusive to banks.
Continue reading: The Cardano Foundation supports the creation of a regulatory framework for stablecoins and cryptoassets
