SEC Clears Paxos in BUSD Stablecoin Investigation

In a significant development for the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has concluded its investigation into the Binance USD (BUSD) stablecoin without pursuing enforcement action against its issuer, Paxos. The New York-based blockchain infrastructure company received a formal termination notice from the SEC on July 9, 2024, marking the end of a probe that began with a Wells notice in February 2023.

Paxos, which had steadfastly maintained that its USD-backed stablecoins are not securities under federal law, welcomed the SEC’s decision. In a statement, the company expressed pride in its “relentless advocacy for stable-value digital assets” and suggested that this outcome could “unlock a new wave of stablecoin adoption by leading global enterprises.”

The investigation’s conclusion follows recent legal setbacks for the SEC in its efforts to regulate cryptocurrencies as securities. Notably, a federal judge cited the Ripple ruling when dismissing a claim related to BUSD in the SEC’s case against Binance in June 2024. These developments may force the regulator to reevaluate its approach to ongoing enforcement actions against other crypto firms.

Industry reactions to the news have been positive, with Circle CEO Jeremy Allaire stating that “regulatory clarity that payment stablecoins are payment money and not securities is prevailing all around the world.” The decision also raises questions about the SEC’s stance on stablecoins as securities, especially as U.S. lawmakers work to craft legislation for stablecoin regulation.

Paxos, which stopped minting BUSD at the direction of the New York Department of Financial Services in early 2023, emphasized its commitment to consumer protection and regulatory compliance. The company highlighted that its stablecoins are always backed 1:1 with US dollar-denominated reserves, fully segregated, and held in bankruptcy-remote accounts.