Hours after the US Securities and Exchange Commission (SEC) issued a notice from Wells to Paxos, the issuer of BUSD, it was reported that the company was told to stop issuing the stablecoin.
New York regulator orders Paxos to stop minting new BUSD
Changpeng Zhao, the CEO of Binance, broke the news on February 13 after being informed by Paxos.
Paxos is regulated by the New York State Department of Financial Services (NYDFS) and claims to comply with US law. He is reportedly taking this step following an order from New York regulators.
It was revealed that Paxos received a notice from Wells from the SEC earlier. The agency asserts that BUSD is an unregistered security, which meets the criteria set out in the Howey Test. The Howey Test establishes the aspects that qualify an asset to be classified as a security and placed under SEC regulations.
Upon receiving Wells’ notice, the stablecoin issuer was supposed to explain, in writing, why the agency should not pursue an enforcement action, in this case, a lawsuit.
Wells’ notice has not been made public, but its contents are well known to those privy to what is going on inside Paxos.
There has been no official comment from Paxos on this development. At the same time, the NYDFS has yet to issue the statement.
What is publicly known is that Paxos issues BUSD under the Binance brand. Binance is the world’s largest exchange by number of clients, but it is not directly associated with Paxos. Paxos takes full control of BUSD minting.
BUSD Market Capitalization Decrease
At the time of writing on February 13, BUSD was the third largest stablecoin by market cap with a circulating supply of $16.1 billion. The stablecoin is also trading below the $1 peg, with the USD at $0.9995.
The slight decoupling could, following the announcement, be due to outflows into other stablecoins, including USDT and USDC.
It is not yet known how this could affect stablecoin dynamics across the board.
Still, Changpeng Zhao expects “BUSD’s market capitalization to continue to decline,” and Paxos will continue to service the product, managing the swaps.