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New York-based banking powerhouse Morgan Stanley opines that a drop in stablecoin issuance is a negative sign for crypto trading.
According to Morgan Stanley (NYSE: MS), a decrease in stablecoin issuance spells bad news for crypto trading. In a research report on Monday, the New York-based banking giant delineated the benefits of stablecoins to crypto trading. In addition, Morgan Stanley pointed out that stablecoin products potentially compete with the traditional banking system.
Morgan Stanley Foresees Increased Government Regulation on Stablecoin Issuance
The Morgan Stanley report also stated that stablecoin issuance would likely see more regulation from the US government due to its increasing popularity. However, some of these regulatory efforts might not be beneficial to stablecoin support due to the issue of unregistered securities. For instance, Morgan Stanley pointed out that US regulators have begun to limit stablecoin products, despite their importance to crypto trading. A prime example of such governmental actions on stablecoin issuance is the recent Paxos BUSD case.
Paxos Looming SEC Lawsuit over Unregistered BUSD
Yesterday reports stated that stablecoin issuer Paxos received a lawsuit notice from the Securities and Exchange Commission (SEC). According to the Commission, the blockchain company violated investor protection rules regarding the issuance of unregistered Binance USD securities.
Although Paxos remained mum on the SEC matter at the time, a Binance spokesperson attempted to shed light on Paxos’ BUSD tokens. According to the spokesperson, although Binance licenses its brand to Paxos, BUSD is a Paxos-issued and owned product. Furthermore, the Binance representative also said Paxos was under regulation by the New York Department of Financial Services (NYDFS). Emphasizing the need for stablecoins, the spokesperson explained:
“Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people across the globe. We will continue to monitor the situation, [in the meantime], our global users have a wide array of stablecoins available to them.”
NYDFS Stablecoin Desist Order
However, on the heels of the Binance’s spokesperson’s assertion, the NYDFS has ordered Paxos to desist from issuing BUSD stablecoins immediately. This development marks the first major crackdown by the financial services regulator on the stablecoin market.
Going by the NYDFS’ order, Paxos can no longer issue stablecoins any further but could still provide services to the product. In addition, the company could also manage redemptions up until February next year. In an announcement, Paxos said:
“New and existing Paxos customers will be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a regulated US dollar-backed stablecoin also issued by Paxos Trust.”
Furthermore, Paxos and Binance previously assured customers of the safety of their funds which have adequate reserve backing. In addition, Paxos also revealed that the NYDFS’ order does not affect its native stablecoin USDP and pax gold (PAXG).
Binance CEO Changpeng Zhao weighed in on the Paxos-NYDFS development, pledging support for BUSD for the foreseeable future. However, Zhao also admitted that users would invariably migrate to other stablecoins over time, and Binance “will make product adjustments accordingly.”