The recent SEC lawsuit against Paxos over Binance USD (BUSD) has caused confusion and debate among the cryptocurrency community.
The U.S. Securities and Exchange Commission (SEC) issued a wells notice to Paxos. They claim that BUSD is an unregistered security, which resulted in the New York Department of Financial Services (NYDFS) ordering the halt of BUSD issuance.
This has led to a range of reactions from the crypto community, with some members dismissing it as fear, uncertainty, and doubt (FUD), while others view it as an attack on the Binance exchange.
The community is split on their thoughts about the situation, with some saying that those who bought the stablecoin were not expecting it to increase in value.
The crypto community on Twitter started to talk about this controversy, but they seem to agree that nobody would buy a stablecoin and anticipate a profit. Others expressed confusion about the development, questioning how BUSD can be considered a security and asking their followers if they expected its value to reach $2.
Some even took it more personally, attacking SEC chairperson Gary Gensler, suggesting that he is on an “unhinged, unchecked crusade against crypto.”
However, some dismissed the news as FUD and pointed out that BUSD is fully backed and the halt in issuance by Paxos will not affect existing tokens. They encouraged everyone to stay informed but advised against making emotional decisions. A few voices have also pointed out the urgent need for a stablecoin registry framework.
Bitcoin analyst Tedtalksmacro also expressed similar thoughts, suggesting that BUSD may not meet the criteria of a security. The analyst hinted that the situation might just be a way to target Binance.
The SEC claims that BUSD is an unregistered security and is suing it's issuer Paxos 🚩— tedtalksmacro (@tedtalksmacro) February 13, 2023
To be considered a security, the Howey Test is used… I don't think BUSD meets the criteria, it's a damn stablecoin!?
Seems more like a shot at Binance, than anything else. pic.twitter.com/9sAuys5GY7
It’s important to understand that despite stablecoins being designed to have a fixed value, their holders can still generate profits through methods such as arbitrage, hedging, and staking.
What is BUSD?
BUSD is a stablecoin co-founded by Paxos and Binance. Paxos leverages blockchain technology to provide its Stablecoin as a Service product to other companies.
The company has also previously developed a stablecoin backed by gold, known as PAX Gold (PAXG). Both BUSD and PAXG tokens fall under the jurisdiction of the New York State Department of Financial Services.
BUSD is a fiat-backed stablecoin, pegged to the U.S. dollar. Paxos holds an equivalent amount of U.S. dollars in FDIC-insured banks or backed by U.S. Treasuries, serving as the reserves for the total supply of BUSD.
The price of BUSD adjusts in equal amounts to the changes in the value of the U.S. dollar.
Binance’s CEO still supports BUSD
Binance CEO Changpeng Zhao, also known as “CZ,” announced that the exchange would continue to support Binance USD (BUSD), despite the announcement made by the SEC that argues that BUSD is an unregistered security.
Changpeng Zhao (CZ), CEO of Binance, has reassured users that their funds are secure despite regulatory enforcement.
However, he stressed the fact that Paxos, regulated by NYDFS, fully owns and manages BUSD.
#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!
Paxos will continue to manage BUSD, including redemptions, and its reserves have been audited by multiple parties, according to Zhao. He acknowledged that the enforcement action might cause a decrease in BUSD’s market cap over time. But Binance will consider alternative non-USD-based stablecoins.
Despite this, Binance will remain supportive of BUSD on the exchange, though it acknowledges that some users may switch to other stablecoin tokens due to the enforcement.
CZ also explained that Paxos, the issuer of the Binance USD (BUSD) stablecoin, is regulated by the New York State Department of Financial Services. He has made assurances of its reserves, which have been audited by multiple parties.
Zhao also acknowledged that the actions taken by the SEC and NYDFS could have a significant impact on the future development of the cryptocurrency ecosystem. He warned of the potential implications if BUSD is ruled as a security by the courts.
Given the regulatory uncertainty in certain markets, Binance may also review other projects to ensure the safety of its users. This comes after a number of cryptocurrency service providers, and tokens have faced enforcement actions by American regulators, including Ripple’s ongoing legal battle with the SEC over XRP being an unregistered security. Kraken also ceased its staking services to U.S. clients and paid a $30 million settlement to the SEC for failing to register its crypto asset staking program.