Crypto skeptics had been waiting for the wheels to fall off for years. In 2022, they finally got their schadenfreude. Now this year, the collapse is continuing in interesting ways. Where last year brought about multiple crypto company demises of their own doing, 2023 is bringing an increasingly aggressive U.S. Securities and Exchange Commission (SEC). By proxy of its business partner Paxos, Binance (BNB-USD) is the latest victim of the bold agency as its stablecoin faces uncertainty.
The exchange relies quite heavily on Binance’s own stablecoin, Binance USD (BUSD-USD). The role BUSD plays on the exchange’s many products has even increased in value over the last several months as Binance shifts away from the use of other stablecoins on its trading floors.
Paxos holds a very important role in preserving this massive ecosystem. The company, which operates its own Pax Dollar (USDP-USD) stablecoin, is also the issuer of BUSD. Seeing as Paxos operates under the watch of the New York State Department of Financial Services (NYSDFS), investors presume BUSD exists under proper regulation. However, reports in the latter half of 2022 have shown conflict between Binance and Paxos over which BUSD products are properly regulated.
Those concerns laid out by BeInCrypto in December are turning out to be especially prescient. Specifically, the SEC has taken notice of these blurred lines and is now stepping in. The SEC just announced that it’s deeming BUSD a security — and that it intends to sue Paxos over its issuance of the stablecoin. In the midst of this news, Paxos is planning to drop its minting of BUSD at the behest of the NYSDFS.
Paxos Strong-Armed by the SEC. What’s Next for Binance?
The Paxos news is obviously rattling investors on Monday. Binance’s flagship BNB crypto is in decay, dropping below $300 for the first time in weeks. Inflows of BUSD to exchanges are also surging as investors trade the stablecoin asset for alternatives like Tether (USDT-USD).
There are others still who maintain a skeptical attitude toward the SEC’s motive. Across Twitter, investors are expressing disbelief that the SEC is labeling the stablecoin as a security, seeing as it is meant to stay permanently affixed to a $1 price and doesn’t provide investors with an expectation of profit.
The NYSDFS investigation remains mysterious, though, which does prompt concern. Investors don’t know what the agency is necessarily investigating, although they are aware of the power it can flex. The state has given a hard time to stablecoin issuers in the past and New York Attorney General Letitia James has barred the trading of some stablecoins in New York before.
In the immediate aftermath of this news, Binance CEO Changpeng Zhao is publishing a thread on Twitter. In the posts, Zhao confirms to investors that, for the foreseeable future, there will be no more BUSD minting. However, Paxos will still manage and redeem existing BUSD. Zhao is being transparent that BUSD could fall to the wayside in favor of other stablecoins.
Zhao, like many others, is voicing immense skepticism over the SEC lawsuit. However, he also acknowledges that a ruling in favor of the agency could have a detrimental effect on the whole crypto industry. As investors continue to await details around the suit and the investigation, Binance will be moving away from its BUSD as the main vehicle for crypto trading on its platform.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
