By
Temitope Olatunji
April 19th, 2024
Only time will tell now whether or not the SEC will heed caution to proceed with its Paxos crackdown or not.
Following the Wells Notice it issued Paxos Trust earlier this month, the United States Securities and Exchange Commission (SEC) may be gearing up to levy charges against the company for its issuance of Binance USD (BUSD) stablecoin. According to a CNBC report, the SEC has not started an official action as of now and experts noted that the costs of such a move will be significant for the $137 billion industry niche.
The Binance USD token, like every other stablecoin, is a cryptocurrency whose prices do not fluctuate based on the imbalance of supply and demand. The tokens are backed by cash or other reserve assets with their algorithm designed to maintain a 1:1 peg with the United States Dollar.
Binance is closely associated with Binance Exchange, and it is traded on several exchanges, including those in the US. It remains unclear what allegations the SEC may want to levy on Paxos as it relates to the BUSD stablecoin but experts are looking at some forms of securities violation.
The SEC is notorious for raising charges against crypto companies and one of the most significant is that with blockchain payments firm, Ripple Labs Inc. Many smaller crypto companies generally tend to arrive at a settlement with the SEC, pay a small fine, and back off the cause of the charges.
Despite projections, the opposite is likely what will happen with Paxos as the firm has stated categorically that it does not agree with the SEC’s designation of BUSD as a security. The firm revealed it will resort to litigation if necessary to clear up its business model involving the BUSD with the regulator.
While experts believe the move will be costly for Paxos and make the BUSD an unattractive stablecoin in the US, the firm seems likely to go all the way just like Ripple did.
Paxos and SEC feud, a New Precedent for Stablecoins
One of the reasons outlined by Ripple for fighting the SEC non-stop since December 2020 is that it does not want the regulator to set a precedent that can hurt the broader digital currency ecosystem.
The current Paxos and SEC feud will trail a similar path as if the Gary Gensler-led commission can successfully charge the former for the issuance of BUSD, then other stablecoin issuers in the US should get ready to register and possibly pay some fines.
“If the SEC charges Paxos, any other issuer of stablecoins should register or prepare for a court fight with the SEC,” Renato Mariotti, a partner at law firm BCLP, told CNBC.
Besides cracking down on US stablecoin issuers, the legal precedent will also affect Tether Holdings Ltd, the issuer of the world’s largest stablecoin USDT. Many experts have voiced concerns that the SEC is making an attempt to cut off the US from financial evolution with its regulation by enforcement tactics.
Only time will tell now whether or not the SEC will heed caution to proceed with its Paxos crackdown or not.