As per reports, the latest target of the Securities and Exchange Commission (SEC) is the issuer and owner of Binance USD (BUSD), the third-largest stablecoin in the market.
The company has confirmed that the regulatory agency is planning on filing a lawsuit against Paxos Trust for violation of investor protection laws.
Paxos announced that it would stop minting the BUSD stablecoin and its relationship with Binance would also be terminated in relation to the stablecoin.
It also asserted that the existing Binance USD tokens in the market are fully backed and people have until February next year to redeem them.
The chief executive and founder of Binance, Changpeng Zhao said that he had also been informed by Paxos about its intention.
Paxos is regulated by the New York Department of Financial Services (NYDFS) and the agency ordered the company to halt the process of minting BUSD.
It was in 2019 that Paxos signed a deal with the largest crypto exchange in the world in terms of trading volume for using its brand and name
Since then, it has been running the BUSD issuing operation, thanks to its license agreement with Binance.
Data from CoinGecko shows that the market capitalization of BUSD stands at $16 billion, which is partly because of the prominence of Binance.
However, since BUSD is a stablecoin and not a regular cryptocurrency, its trading volume and market cap do not have any impact on the product’s value.
BUSD and Paxos
It is interesting to note that the NYDFS has only ordered Paxos to cease its BUSD operation. Customers can redeem their BUSD holdings for the Pax Dollar (USDP), which is its own stablecoin, or for cash.
The statement that Paxos issued did not mention the SEC, or any lawsuit that may be filed, but it did use the word ‘regulated’ several times.
But, this news will certainly affect Binance’s standing because it will lose out on the licensing fees and the marketing power of Binance USD (BUSD) will also take a hit.
According to CoinGecko, there was a 5% drop in Binance’s utility token, Binance Coin (BNB), after the announcement.
The last few months have seen the US SEC become quite aggressive in terms of dealing with the crypto industry.
Last week saw the regulatory agency settle with the Kraken crypto exchange for $30 million due to its crypto staking services.
Gary Gensler, the chairman of the SEC, also warned crypto firms that there was not a lot of room where compliance is concerned.
However, not all of Gensler’s colleagues are happy with his stance in terms of the crypto crackdown that has been launched recently.
Hester Pierce, an SEC commissioner, expressed her dissent by referring to the Kraken case and stating that regulators don’t offer a workable registration process for facilitating investors and they only shut it down.
The enforcement approach that the SEC has taken for regulating the crypto industry has attracted a lot of criticism, as people believe that it could harm innovation.