The crypto community reacts to SEC vs Paxos controversy

The crypto community has expressed deep concerns regarding the ongoing controversies between Paxos, which has been instructed to halt issuing BUSD stablecoin, and the US SEC.

Paxos and SEC collide on the issuance of BUSD

Paxos, a leading blockchain infrastructure and stablecoin issuer, has found itself amid regulatory concerns with the US Securities and Exchange Commission (SEC). The US financial watchdog issued a Wells notice to Paxos concerning the issuance of BUSD tokens licensed by Binance, the world’s largest centralized exchange. The Wells notice indicated that BUSD is a security and that Paxos should have registered the token under federal securities laws.

In response, Paxos categorically denied the claims by the SEC that BUSD was a security and, therefore, prone to federal securities laws. As a result of the regulatory scrutiny, Paxos also announced that its relationship with Binance will end and minting BUSD will cease effective Feb 21.

CZ responds to the issue

Binance’s CEO CZ also addressed the issue on Twitter regarding Paxos’ situation with the SEC. He explained that Paxos reached out to Binance after the New York Department of Financial Services (NYDFS) instructed the company to cease minting new BUSD. CZ also explained that the stablecoin is wholly owned and issued by Paxos, and Binance’s role in the ecosystem is to promote the stablecoin.

2/ 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.
— CZ 🔶 Binance (@cz_binance) February 13, 2023

CZ mentioned that he was unaware of any impending lawsuit Paxos would face against the SEC. However, he stated that the market cap of the stablecoin would significantly reduce over time.

Binance USD is a stablecoin pegged to the US Dollar. The stablecoin is collaterally backed with reserves wholly managed by Paxos under the keen supervision of the NYDFS. According to the thread, the regulatory moves by the SEC to diminish BUSD will heavily impact the crypto markets moving forward.

BUSD still maintains its peg

As controversies continue to heighten, BUSD has continuously maintained its dollar peg. Updated data from TradingView, a virtual real-time charting software, indicates that 1 BUSD is trading at approximately $1, although the news slightly altered its price.

Paxos also mentioned that BUSD would continue to maintain its value against the dollar as the firm keenly monitors its reserves against the amount of BUSD in circulation.

3/ Paxos will continue to manage all outstanding BUSD reserves, ensuring all BUSD are always backed 1:1 with US dollar-denominated reserves held in bankruptcy remote accounts.
— Paxos (@PaxosGlobal) February 13, 2023

According to Chinese reporter Colin Wu, the roots of the ongoing feud between Paxos and SEC date back to last year after Circle, the USDC stablecoin issuer, complained to the NYDFS about Binance peg BUSD.

Bloomberg reported that Circle complained to the NYDFS last year about Binance’s mismanagement of its own token reserves. NYDFS explained the suspension of BUSD due to several unresolved issues with Paxos’ relationship with Binance. Special emphasis on unauthorized Binance-Peg… https://t.co/wR4Z3Y6VqJ
— Wu Blockchain (@WuBlockchain) February 13, 2023

Circle is involved

It is important to note that Binance peg BUSD differs from the Binance USD (BUSD) stablecoin issued by Paxos. The Paxos-issued BUSD is an ethereum-based stablecoin regulated by NYDFS. However, Binance developed the Binance peg BUSD which is a token pegged to Paxos’ BUSD but can extend its interoperability to other blockchains beyond Ethereum, including BNB chain and BNB Smart Chain.

Paxos has complied with regulators to cease BUSD operation. Still, the crypto firm stated that a vigorous legal battle would likely ensue.

Members of the Aave community are examining whether to freeze the Binance’s BUSD stabelcoin on the platform after the token’s issuer Paxos was sued by the SEC today.
Decentralization for the win 🤷‍♂️
— whalechart.org (@WhaleChart) February 13, 2023

Some crypto enthusiasts angrily criticized the SEC for its moves to apprehend stablecoins. One particular user termed the financial watchdog as a corrupt dumpster fire.

Another congratulated Paxos for its decision to fight the SEC for its allegedly false claims that BUSD was issued on the grounds of federal securities regulations.

BUSD market capitalization has dramatically reduced to 15.4 billion in the past 24 hours, according to etherscan, a blockchain analytics and explorer. This is after 342 million BUSD were burnt at Paxos Treasury in the same period.

Bottom Line

Since the year began, the SEC has been on the necks of centralized cryptocurrency firms fueling the growth and expansion of the ecosystem. As a result, crypto prices have taken a beating. The moves recently taken by regulators worldwide (including SEC) are a ripple effect of the collapse of the FTX exchange.

Moreover, SEC chair Gary Gensler declared war on stablecoins in July 2021 while speaking to the American Bar association. Kraken also recently fell victim to regulatory scrutiny, as reported by crypto.news. US regulators forced the exchange to shut down its staking services as the SEC continued to conduct further investigations.

Source: https://crypto.news/the-crypto-community-reacts-to-sec-vs-paxos-controversy/