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Stable coins are generally cryptos designed to have a relatively stable price to the asset it is pegged to. Stablecoins are usually pegged to a commodity or currency such as gold or USD. According to coinmarketcap, there are a total of 136 stable coins with a combined Market Cap of $135.7 billion with trading volume of ~ $44.5 billion.
Recently US regulators (SEC) labeled BUSD, the stable coin of Binance as an unregistered security, which was minted by Paxos, a regulated blockchain infrastructure platform. The platform is also facing legal trouble after the SEC cited its plans to sue Paxos Trust for violating investor protection laws. In today’s article we are taking a closer look at BUSD and how this may play out in the long term.
BUSD are stable coins of Binance, that are pegged to US dollars. According to CMC, BUSD is the third largest stable coin with a market cap of ~ $10 billion. Paxos is entrusted with minting and issuing BUSD. In February, New York state’s financial regulator ordered Paxos to stop issuing BUSD. According to what we know so far, the regulatory authorities consider BUSD as a security.
As per the laws, a security should have registered the offering under federal securities laws and as Paxos has not done that, they may be in legal troubles as well. Paxos has issued a statement that it will end its relationship with Binance for the branded stablecoin BUSD. The customers can redeem their BUSD for cash or convert to Pax Dollar (USDP) which is a regulated US dollar-backed stablecoin also issued by Paxos Trust. Following this, Coinbase has decided to suspend trading for Binance USD (BUSD) on March 13, 2023 in Coinbase.com, Coinbase Pro, Coinbase Exchange, and Coinbase Prime. However, customers can withdraw their funds anytime.
<source: twitter>
Although no specifics have been given regarding the proceedings for the Paxos-BUSD fiasco, the underlying question is “whether stablecoins are securities or not”. They are apparently using “Howey test” to determine if any asset is a security by using four fundamental parameters. If BUSD is deemed as a security by the SEC, then all the entities that are issuing BUSD have to register with SEC and comply with all rules that are applicable to securities.
This in turn has stirred the speculation that other stable coins might also be deemed as a security. However, we have to wait and see what kind of ruling the proceedings may lead to that may have direct implications for other stable coins. USDT currently sits at the top of the stable coin pile with a market cap of ~$71 billion, followed by USDC at ~$42 billion according to CMC. Although a ruling against BUSD may put USDT and USDC in SEC’s cross hairs, many experts believe that Tether and Circle, the company that issues USDC and USDT and on good terms with the US government and a move against them are unlikely.
For Binance, scrutiny on BUSD and its partner Paxos mark just the latest pressure on the exchange’s links to the U.S. financial system. Binance has been constantly facing pressure from the US regulators and this latest move has resulted in a dip in their associated coin BNB. Binance's CEO Zhao said that if BUSD was ruled to be a security, "it will have profound impacts on how the crypto industry will develop in the jurisdictions where it is ruled as such."
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.