SEC Ends Investigation into Paxos, Declares BUSD Not a Security
Paxos says the Wells notice made it difficult to partner with new companies. With the investigation closed, they expect to move forward with exciting collaborations. This decision could also encourage more stablecoin development in the US, which has lagged behind other countries due to regulatory uncertainty.
Because Bitcoin
July 11, 2024
Fortune reported that the SEC ended an investigation into Paxos, a New York company that issues stablecoins. Over a year ago, the SEC signaled they might take action against Paxos' BUSD stablecoin (issued with Binance) by sending them a Wells notice, a warning of potential legal trouble. The SEC argued that BUSD earned profits, making it a security.
This change in direction by the SEC comes after a partial court defeat in a lawsuit against Binance. With no clear laws from Congress, the SEC's decision is a win for stablecoins. Companies like PayPal and VanEck are now more likely to enter this growing market.
Paxos feels a huge weight lifted with the investigation closed. They believe this will bring more certainty to the market, attracting established businesses. The SEC declined to comment on the investigation.
The SEC's concern was that BUSD's reserves generated profits for both Paxos and Binance, which were partly returned to Binance users as interest. This profit-sharing aspect worried the SEC, who saw it as an investment opportunity, a key feature of securities. Paxos disagreed, stating BUSD was fully backed by dollars.
The SEC's action against Paxos highlighted the unclear legal status of stablecoins. Many argue that stablecoins shouldn't be considered securities because they don't promise profits.
For over a year, the investigation continued. But after a judge ruled in favor of Binance regarding BUSD sales not being securities, the SEC seems to have changed its mind. Paxos says the Wells notice made it difficult to partner with new companies. With the investigation closed, they expect to move forward with exciting collaborations. This decision could also encourage more stablecoin development in the US, which has lagged behind other countries due to regulatory uncertainty.
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