Is Stablecoin “BUSD” Not a Security? SEC Concludes Investigation Into Paxos

Paxos recently announced that the SEC has concluded its investigation into Binance USD (BUSD) without taking enforcement action.

This decision marks a significant victory for Paxos, who had been under scrutiny since the SEC claimed BUSD was an unregistered security.

The case also sheds light on the complex regulatory environment surrounding digital assets, making it a pivotal moment in the debate over the classification of stablecoins as securities.

Paxos Announcement on SEC Investigation Conclusion

On July 11, 2024, Paxos, known for issuing multiple stablecoins, announced that the U.S. Securities and Exchange Commission (SEC) has concluded its investigation into Binance USD (BUSD) and decided not to take any enforcement action against Paxos regarding BUSD.

BinanceUSD (BUSD) is a Binance-branded, U.S. dollar-pegged stablecoin issued by Paxos. In February of the previous year, the SEC claimed that “BUSD constitutes an unregistered security” and issued a warning to Paxos.

At that time, the New York State Department of Financial Services (NYDFS) also issued an order to halt the issuance of new BUSD, leading Binance to take measures to discontinue its support for BUSD.

However, the recent announcement highlights Paxos’s victory over the SEC in the BUSD investigation.

Paxos, the leading regulated blockchain & tokenization infrastructure platform, today announced that it received a formal termination notice from the SEC on July 9, 2024, stating that it will not recommend enforcement action against Paxos Trust Company in the  investigation of Binance USD (BUSD). 

Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified. We are proud of our relentless advocacy for stable-value digital assets and that the SEC staff determined it will not bring enforcement action against Paxos in connection with BUSD.

Impact and Future Outlook

In its official announcement, Paxos also expressed confidence that this decision would lead to a new wave of stablecoin adoption by major global companies.

“Stablecoins like those issued by Paxos, which are equipped with robust consumer protection, have the potential to transform the financial system in use cases such as payments, settlements, and remittances.

These innovative technologies will make the financial system more stable, accessible, and transparent,” Paxos commented.

The SEC has taken a nuanced stance on cryptocurrency regulations, noting that while the sale of Ethereum is not considered a securities transaction, activities like swap-staking violate securities laws.

This makes the standards for securities law violations complex. The resolution of this case is seen as an important milestone in the ongoing debate over the security status of stablecoins.