SEC Drops Stablecoin Probe, Marking a Win for Paxos and the Crypto Industry

In
a
notable
decision,
the
Securities
and
Exchange
Commission
(SEC)
has
ended
its
investigation
into
Paxos’
BUSD
stablecoin,
according
to

Fortune.
This
move
is
seen
as
a
significant
win
for
the
crypto
industry,
which
has
long
sought
regulatory
clarity.

The
SEC’s
Decision

On
July
9,
Jorge
Tenreiro,
the
acting
chief
of
the
SEC’s
crypto
assets
and
cyber
unit,
informed
Paxos
that
he
did
not
intend
to
recommend
an
enforcement
action.
This
notice
came
more
than
a
year
after
the
SEC
had
issued
a
Wells
notice
to
Paxos,
signaling
an
impending
enforcement
action
over
the
BUSD
stablecoin,
which
Paxos
issued
in
partnership
with
Binance.

The
SEC’s
retreat
follows
a
partial
defeat
in
a
lawsuit
against
Binance,
where
a
federal
judge
ruled
that
the
sales
of
BUSD
did
not
constitute
a
securities
offering.
The
judge’s
decision
appears
to
have
influenced
the
SEC’s
stance
on
the
matter.

Impact
on
the
Crypto
Industry

This
decision
by
the
SEC
is
a
relief
for
Paxos
and
the
broader
stablecoin
sector,
which
includes
major
players
like
PayPal
and
VanEck.
Walter
Hessert,
head
of
strategy
at
Paxos,
expressed
optimism,
stating
that
the
termination
of
the
investigation
should
create
more
certainty
in
the
market
and
foster
new
enterprise
partnerships.

The
SEC’s
move
is
particularly
timely
as
Congress
continues
to
delay
legislation
to
regulate
the
growing
asset
class.
Stablecoins
have
been
in
a
regulatory
gray
zone,
but
many
in
the
industry
argue
that
the
absence
of
an
expectation
of
profit—a
key
factor
in
determining
securities—sets
them
apart
from
other
crypto
assets.

Background
on
BUSD
and
Regulatory
Challenges

Paxos
first
launched
BUSD
in
partnership
with
Binance
in
September
2019.
While
it
never
overtook
competitors
like
Tether
and
USDC,
it
became
a
significant
player
in
the
stablecoin
market
due
to
its
integration
with
the
Binance
ecosystem.

The
SEC
had
argued
that
BUSD
was
an
investment
contract
and
thus
a
security
because
it
generated
profits
through
its
reserves.
Paxos,
however,
maintained
that
BUSD
was
backed
1:1
with
dollar-denominated
reserves
and
disagreed
with
the
SEC’s
stance.

The
investigation
had
placed
a
cloud
over
Paxos,
impacting
its
ability
to
form
new
partnerships,
including
potential
collaborations
with
companies
like
PayPal.
Hessert
noted
that
the
end
of
the
investigation
would
likely
accelerate
enterprise
conversations.

Looking
Ahead

The
SEC’s
decision
could
bolster
the
stablecoin
sector
in
the
U.S.,
which
has
seen
firms
looking
abroad
to
launch
new
offerings
amid
regulatory
uncertainty.
As
the
crypto
industry
continues
to
evolve,
the
resolution
of
this
investigation
may
serve
as
a
precedent
for
how
similar
cases
are
handled
in
the
future.

Image
source:
Shutterstock