Stablecoin Pressure Mounts as Paxos Ceases BUSD Issuance and SEC Issues Wells Notice
By On February 12th, 2023, Paxos, a leading regulated blockchain and tokenization infrastructure platform, announced that it was ceasing its issuance of BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services (NYDFS).[0] BUSD dollar reserves will be overseen by the NYDFS and managed by Paxos Trust, a regulated institution that has been audited by one of the four major accounting firms.[1] Paxos Trust has issued BUSD tokens which are fully supported 1:1 by US dollar reserves, segregated, and held in bankruptcy-remote accounts, and will always remain so. Furthermore, the instruments held by Paxos in reserve as of close of business February 10th, 2023 are also available on their website.[1]
The next day, the New York regulator issued a Consumer Notice regarding the Paxos-issued binance usd (BUSD) stablecoin.[2] The SEC then issued a Wells Notice to Paxos on February 3rd, 2023, which stated that they were considering recommending an action alleging that BUSD is a security and that Paxos should have registered the offering of BUSD under the federal securities laws.[3]
On February 15th, Dante Disparte, the Chief Strategy Officer and Head of Global Policy at CirclePay, debunked rumors that his firm had received a Wells Notice.[4] He stated that Circle had not received a Wells Notice, and that Circle maintains that USDC is a regulated dollar digital currency issued as stored value under U.S. money transmission law.[5]
Stablecoins are cryptocurrencies which attempt to maintain a more stable price, usually by pegging its value to an underlying asset like gold or U.S. dollars.[5] BUSD, issued by Paxos and branded by Binance, is a stablecoin that has a fixed value of $1 and is the seventh-largest cryptocurrency by market capitalization.[6] BUSD is backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. Binance also has their own version of BUSD, known as Binance-peg BUSD or B-Tokens, which are supposed to be backed 1-to-1 by locked reserves.[7]
The amount of pressure put on stablecoins is quite significant, with multiple agencies applying pressure.[8] This is likely to shrink the U.S. dollar-based stablecoin market, causing the industry to explore its options.[8]
0. “Crypto Markets Falter Amid Latest Regulatory Crackdown” The Defiant – DeFi News, 14 Feb. 2023, https://thedefiant.io/crypto-selloff-regulatory-crackdown
1. “Paxos Will Halt Minting New BUSD Tokens” PR Newswire, 13 Feb. 2023, https://www.prnewswire.com/news-releases/paxos-will-halt-minting-new-busd-tokens-301744964.html
2. “BUSD Redemptions Soar Near $290 Million in 8 Hours After NYDFS Consumer Alert – Bitcoin News” Bitcoin News, 13 Feb. 2023, https://news.bitcoin.com/busd-redemptions-soar-near-290-million-in-8-hours-after-nydfs-consumer-alert/
3. “Paxos Issues Statement” PR Newswire, 13 Feb. 2023, https://www.prnewswire.com/news-releases/paxos-issues-statement-301745616.html
4. “USDC Issuer Circle Debunks Rumors Of Being SEC’s Latest Target | Bitcoinist.com” Bitcoinist, 15 Feb. 2023, https://bitcoinist.com/usdc-issuer-circle-debunks-rumors-of-sec
5. “US Regulatory Curbs Spark $1.4 Billion Slump in Binance-Branded Stablecoin BUSD” Yahoo! Voices, 15 Feb. 2023, https://www.yahoo.com/now/us-regulatory-curbs-spark-900-085308913.html
6. “Binance's CZ distances links to BUSD: ‘That's not something we created'” Markets Insider, 15 Feb. 2023, https://markets.businessinsider.com/news/currencies/binance-cz-changpeng-zhao-paxos-busd-stablecoin-sec-crypto-crackdown-2023-2
7. “Crypto exchange Binance hit by major outflows. Here's why” MarketWatch, 14 Feb. 2023, https://www.marketwatch.com/story/crypto-exchange-binance-hit-by-major-outflows-heres-why-db7fd52c
8. “Binance CEO CZ Says Algorithmic Stablecoins May Make a Comeback” Bloomberg, 14 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-14/binance-s-cz-says-algo-stablecoins-may-make-a-comeback-after-crackdown
