The crypto industry secured a significant victory against the U.S. Securities and Exchange Commission (SEC) as the regulator concluded its investigation into Paxos over its Binance-branded stablecoin, Binance USD (BUSD), affirming that stablecoins are not securities.
SEC Closes Paxos Investigation
In February 2023, Paxos, a New York-based blockchain infrastructure firm, received a Wells Notice from the SEC, indicating a potential lawsuit for allegedly offering unregistered securities via BUSD. This prompted New York authorities to order Paxos to halt minting the stablecoin. However, after more than a year of scrutiny, the SEC has officially closed the case.
“We have concluded the investigation as to Paxos Trust Company, LLC. Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Paxos,” stated Jorge Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber unit, in a formal letter.
“Paxos prevails in SEC investigation of BUSD stablecoin” 👏
On Tuesday, we received a formal termination notice from the SEC stating that it will not recommend enforcement action against Paxos Trust Company in the investigation of Binance USD (BUSD).
View the letter and our… pic.twitter.com/8kjysfsPg3
— Paxos (@Paxos) July 11, 2024
Impact of Operation Choke Point 2.0
The Paxos probe was part of the broader “Operation Choke Point 2.0,” a comprehensive SEC initiative targeting multiple cryptocurrency service providers. This operation also saw the SEC pursuing Binance and Coinbase for alleged securities violations. As a result, Paxos had to place BUSD in redemption-only status and discontinue minting, significantly diminishing its market presence from a peak of $23 billion to a mere $70 million.
Industry Reactions and Future Implications
Following the SEC’s decision to drop the investigation, industry advocates have raised concerns regarding the regulator’s aggressive tactics and the repercussions faced by affected companies. This development not only underscores the need for a clear regulatory framework for cryptocurrencies in the U.S. but also reinforces the notion that stablecoins should not be classified as securities.
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