Paxos Trust has been ordered to stop issuing BUSD due to "unresolved issues."
On Monday, the New York Department of Financial Services (NYDFS) issued a statement informing the public of the order.
"DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD," NYDFS stated.
"In response, on February 13, 2023, Paxos notified customers of its intent to end its relationship with Binance for BUSD."
Paxos confirmed it was obliging to the order in its own statement titled "Paxos Will Halt Minting New BUSD Tokens."
Read more: Weekend Roundup: SEC, Federal Reserve Spook Markets
The news comes just days after the SEC stated it was planning to sue Paxos for violating investor protection laws. The SEC's enforcement staff issued a Wells notice to Paxos, which the financial watchdog uses to inform companies and individuals of possible enforcement action.
The notice alleges that BUSD is an unregistered security as the SEC declared last week that crypto staking services violate security laws. Its stance forced Kraken to close its staking services.
Read more: Staking, Securities & Enforcement
According to data from CoinGecko, BUSD has a market capitalisation of US$16 billion, and is the third largest stablecoin after USDT and USDC.
Binance is taking a 'keep calm and carry on' approach to the chaos. "BUSD is issued and redeemed by Paxos. And funds are #SAFU!" CZ tweeted.
"We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS). Paxos is regulated by NYDFS. BUSD is a stablecoin wholly owned and managed by Paxos... As a result, BUSD market cap will only decrease over time."
CZ also added that Paxos assured Binance that their funds are also "#SAFU, and fully covered by reserves in their banks, with their reserves audited many times by various audit firms already."
Paxos will continue to "service the product, and manage redemptions."
In response to the SEC's allegations, CZ wrote that he has "no information about it, other than public news articles" but agrees with crypto analyst Miles Deutscher's stance of "how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria?"
#BUSD. A thread. 1/8— CZ 🔶 Binance (@cz_binance) February 13, 2023
In summary, BUSD is issued and redeemed by Paxos. And funds are #SAFU!
The SEC has labelled BUSD as an “unregistered security”, and is suing its issuer, Paxos.— Miles Deutscher (@milesdeutscher) February 13, 2023
But how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria.
No one has ever had “the expectation of profit” when buying $BUSD. pic.twitter.com/QXOlDUyvc3
As countries tighten up their regulation in response to the madness that ensued in 2022, the entire crypto framework is being taken into question.
The outcome of the case is yet to be concluded but generally if the expected profit comes from a third party business, the investment is considered a security.
Although stablecoins are perceived to be stable, buyers can still profit from arbitrage, hedging and staking.
If staking and stablecoins are consequently banned outright, it could be incredibly damaging for the crypto scene.
don't hate me but custodial stablecoins are probably all securities— _gabrielShapir0 (@lex_node) February 13, 2023
I have said this consistently
US securities laws are just insanely broad...https://t.co/JDsB0v93Sw
1/5— Adam Cochran (adamscochran.eth) (@adamscochran) February 13, 2023
This is what people don't realize.
Howey test = precedent for investment contracts.
"Securities" is a much broader category defined by the 1933 Securities Act.
Honestly, if the SEC wants to, with how vague the act is, its fairly easy to put anything under it. https://t.co/TbHKqO3zLD
Even ChatGPT is predicting the worst if stablecoins are muscled out by the SEC. "A ban on stablecoins would likely reduce the demand for cryptocurrencies, as investors and traders may look to other asset classes to store their wealth or execute trades. Additionally, the ban could disrupt the functioning of decentralized finance (DeFi) protocols, which rely on stablecoins as a means of maintaining stability in their platforms."