- Paxos will wind down its relationship with Binance for the BUSD stablecoin.
- BUSD redemptions will continue till at least February 2024 but no new tokens will be minted following an order from the New York Department of Financial Services and an SEC lawsuit.
- Binance will also continue to support BUSD while making “product adjustments accordingly”.
- The crypto community voiced bewilderment over the SEC’s decision to go after a fully U.S.-regulated entity like Paxos.
Regulated blockchain company Paxos said that users will be able to redeem their Binance USD (BUSD) stablecoin tokens until at least February 2024. The company noted that the order from the New York Department of Financial Services (NYDFS) stops the company from minting new BUSD tokens, but not from managing its reserves or facilitating redemptions.
Also, the company will shut down BUSD minting by February 21 in compliance with the NYDFS directive. This means that new BUSD tokens will no longer be issued.
The stablecoin issuer assured users that all BUSD assets are backed 1:1 with U.S. dollar-denominated reserves and fully segregated customer funds in compliance with regulatory policies.
Paxos also plans to wind down its relationship with crypto exchange Binance “for the branded stablecoin BUSD”. Binance CEO Changpeng Zhao tweeted that the platform will continue to support BUSD for the foreseeable future.
CZ added that Binance will make product adjustments as users migrate to other stablecoins. Notably, BUSD was a major token on Binance commonly used in trading pairs and paying transaction fees. The exchange recently delisted crypto’s second largest stablecoin USD Coin (USDC) and installed an auto-swap function to convert USDC into BUSD.
The announcements were made after the NYDFS ordered Paxos to cease minting new BUSD tokens amid allegations from the Securities and Exchange Commission (SEC). Per the Wall Street Journal, the SEC categorized BUSD as an unregistered security token and accused Paxos of violating U.S. investor protection laws.
Crypto Community Beffudled By Paxos Debacle
Crypto proponents were left shocked by the SEC’s decision to go after Paxos and BUSD. The blockchain company is regulated by the NYDFS, the very same New York watchdog that ordered Paxos to stop minting new BUSD tokens.
Paxos also boasts a provisional charter from the Office of the Comptroller of the Currency. The same office serves as a regulator for federal banks.
Crypto analyst Miles Deutscher also pointed out that BUSD does not meet the security checklist based on the Howey Test. The SEC commonly uses the Howey Test to assess if an asset meets the security token criteria or not.
The SEC has noticeably doubled scrutiny on the digital asset industry following the failures of marquee entities like FTX. However, figures like SEC commissioner Hester Pierce, also known as “Crypto Mom”, have disagreed with the regulator’s “one-off enforcement actions and cookie-cutter analysis”