Stablecoin issuer Paxos probed by SEC over BUSD offering, report

Key Takeaways

• Reportedly, SEC had issued a Wells Notice to Paxos
• SEC alleges that BUSD is an unregistered security

The United States Securities and Exchange Commission (SEC) plans to sue stablecoin issuer Paxos, over its Binance USD (BUSD) token, according to a Wall Street Journal Report. Reportedly, the watchdog had issued a Wells Notice to Paxos. A “Wells Notice” is a letter sent by the regulator to a prospective respondent, notifying them of the charges the regulator intends to bring against them.

According to the report, SEC alleges that Binance USD, a digital asset that Paxos issues and lists, is unregistered security. This is despite BUSD being the world’s third-largest stablecoin, with the market cap of BUSD standing at over $16 billion. Apart from BUSD, Paxos also issues its own stablecoin-Pax Dollar, which has a market cap of approximately $897 million.

Commenting on the development, a Binance spokesperson stated, “Stablecoins are a critical safety net for investors seeking refuge from volatile markets, and limiting their access would directly harm millions of people across the globe”. The spokesperson further added that they would continue to monitor the situation. “Our global users have a wide array of stablecoins available to them.”

This action on Paxos also marks SEC’s first enforcement action against a major stablecoin issuer. SEC Chairman Gary Gensler had earlier said stablecoins could resemble bank deposits or money-market mutual funds. In October 2022, Gensler also urged the U.S. Congress to give the Commodity Futures Trading Commission more powers to police cryptocurrency stablecoins to reduce risks to the financial system.

The latest moves come as part of the SEC’s larger effort to escalate crypto enforcement in the digital asset sector. Earlier this week, crypto exchange Kraken agreed to stop offering crypto staking services in the U.S. and further pay the SEC $30 million in penalties. Crypto staking allows users to earn money or interest by pledging their crypto assets to an intermediary or a crypto network.

The latest development also comes amid reports that the New York Department of Financial Services (NYDFS) is also probing Paxos over its offerings. In 2019, Binance and Paxos received approval from NYDFS to launch its USD-backed stablecoin-BUSD.