Binance CEO Changpeng Zhao (CZ) has warned of “profound impacts” on the cryptocurrency industry if the Binance USD (BUSD) stablecoin is considered a security. His warning followed an alleged US Securities and Exchange Commission (SEC) lawsuit against Paxos, the issuer of Binance USD.
Binance CEO on SEC Action Against Paxos and BUSD
Following the news that the US Securities and Exchange Commission (SEC) intends to take action against Paxos Trust Company over the Binance USD (BUSD) stablecoin, Binance CEO Changpeng Zhao (CZ), took to Twitter on Monday to explain the situation.
Paxos, which is regulated by the New York Department of Financial Services (NYDFS), also announced Monday that it “will end your relationship with Binance for the BUSD-branded stablecoin.” Paxos also said that it will “stop issuing new BUSD tokens” on February 21.
“Paxos has informed us that they have been ordered by the New York Department of Financial Services (NYDFS) to stop minting new BUSD,” the Binance CEO tweeted, emphasizing:
BUSD, although called Binance USD, is not issued or traded by Binance… BUSD is a stablecoin wholly owned and managed by Paxos.
CZ noted that when Paxos stops minting new BUSD tokens, the stablecoin’s market capitalization will “only go down over time.” As of this writing, BUSD has a market capitalization of almost $16 billion, making it the seventh largest cryptocurrency in the world and the third largest stablecoin.
According to Zhao, “Paxos will continue to service the product and handle the trade-ins.” He added that Paxos assured Binance that the funds are safe “and fully covered by reserves at their banks, with their reserves audited many times over by various auditing firms.”
CZ on the alleged SEC lawsuit against Paxos
The Binance CEO also commented on the alleged SEC lawsuit against Paxos. While he admitted that he is “not an expert on US law” and that he has no additional information on the case apart from public news articles, CZ said that he personally agrees with cryptanalyst Miles Deutscher’s assessment.
German tweeted his opinion Monday morning on the SEC’s action against Paxos on Binance USD. He wrote:
The SEC has labeled BUSD an “unregistered security” and is suing its issuer, Paxos. But how the hell is a security considered a stablecoin, when it clearly doesn’t meet the criteria of the Howey test? No one has ever had “the expectation of profit” when buying BUSD.
In a follow-up tweet, Deutscher acknowledged: “You don’t technically need to pass the Howey test to be considered a stock.” However, he emphasized: “The SEC is basically free to define an investable asset as a security if it chooses. But it certainly sets a terrifying precedent.”
Commenting on whether BUSD is a security, the Binance CEO warned:
‘IF’ BUSD is declared as a security by the courts, it will have a profound impact on how the crypto industry will (or will not) develop in the jurisdictions where it is determined as such.
“Binance will continue to support BUSD for the foreseeable future,” CZ added, noting:
We anticipate users migrating to other stablecoins over time. And we will make product adjustments accordingly, for example, stop using BUSD as the main pair for trading, etc.
“Given the ongoing regulatory uncertainty in certain markets, we will review other projects in those jurisdictions to ensure that our users are protected from any undue harm,” the Binance executive concluded.
Last week, the SEC took action against Kraken over the cryptocurrency exchange’s staking program. The exchange agreed to liquidate the service for US customers and pay $30 million in repayment, pre-judgment interest, and civil penalties. Subsequently, Kraken CEO Jesse Powell urged Congress to pass legislation to protect the US crypto market and American consumers “who will now go abroad for services that are no longer available in the US. “
What do you think about the SEC statement that the BUSD stablecoin is an unregistered security? Let us know in the comments section.
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