SEC Clears Paxos in BUSD Probe: What’s Next for Stablecoins?

• SEC concludes Paxos investigation, no enforcement action recommended, significant relief for stablecoin sector.
• Federal court decision favors Binance, impacts SEC’s charges against Paxos over BUSD.
• Paxos cleared by SEC highlights the need for clear regulatory guidelines amid evolving crypto legislation.

According to recent reports, the U.S. Securities and Exchange Commission (SEC) has formally concluded its investigation into Paxos, the issuer of the Binance USD (BUSD) stablecoin.

Initially issuing a Wells Notice to Paxos in February 2023, the SEC indicated potential enforcement actions over the BUSD stablecoin, which operates in partnership with Binance.

Jorge Tenreiro, acting chief of the SEC’s crypto assets and cyber unit, notified Paxos on July 9th that no enforcement action would be recommended. 

This decision marks a relief for Paxos, with Walter Hessert, head of strategy at Paxos, commenting:

“The termination of this investigation formally is an enormous relief for us. It’s what we expected all along, and it really should create, hopefully, more certainty in the market among what we see as a growing number of large enterprises.”

The investigation centered around whether BUSD qualified as a security, with the SEC arguing that it generated profits for both Binance and Paxos, which were partially passed on to users.

In contrast, Paxos maintained that BUSD is fully backed by dollar reserves on a 1:1 basis, emphasizing its stablecoin nature without profit expectations traditionally associated with securities.

Even though there was an investigation ongoing, a federal judge recently decided in favor of Binance on June 28th. The court said that BUSD transactions are not like selling securities.

This affected the SEC’s decision to drop charges against Paxos. This development gives clear rules for stablecoin makers, who are trying to understand the rules in the changing crypto market.

Ran Neuner, a prominent figure in the crypto community, remarked on the SEC’s decision, highlighting its implications for Paxos, a significant player with over $20 billion in total value locked (TVL) and substantial revenue generation.

As Congress continues to deliberate on comprehensive crypto legislation, the SEC’s conclusion of the Paxos investigation underscores the need for clear regulatory guidelines. This decision marks an unexpected win for the stablecoin sector, impacting companies like PayPal and VanEck involved in similar ventures.