Binance CEO Covers SEC Action Regarding Paxos and BUSD
Binance CEO Changpeng Zhao (CZ) has warned of “significant consequences” for the cryptocurrency sector if stablecoin Binance USD (BUSD) is classified as a security. His warning came after the Securities and Exchange Commission (SEC) allegedly filed a lawsuit against Paxos, the issuer of Binance USD. Following the announcement that the Securities and Exchange Commission (SEC) will take action against Paxos Trust Company over the stablecoin Binance USD (BUSD), Binance CEO Changpeng Zhao (CZ) took to Twitter on Monday to explain the issue. Paxos, which is governed by the New York Department of Financial Services (NYDFS), also announced on Monday that “it will terminate its association with Binance for the branded stablecoin BUSD.” Paxos also stated that it will “stop the issuance of fresh BUSD coins” on February 21. “We were notified by Paxos that the New York Department of Financial Services (NYDFS) has directed them to cease minting new BUSD,” Binance’s CEO tweeted, emphasizing: BUSD, despite being known as Binance USD, is not issued or redeemed by Binance… Paxos is the only owner and manager of the stablecoin BUSD.
When Paxos ceases minting new BUSD tokens, the stablecoin’s market cap “will only drop over time,” according to CZ. BUSD has a market cap of almost $16 billion at the time of writing, making it the world’s seventh-largest cryptocurrency and third-largest stablecoin. “Paxos will continue to serve the product and manage redemptions,” Zhao says. He went on to say that Paxos has informed Binance that the funds are safe “and completely covered by reserves in their banks, with their reserves examined many times already by numerous audit firms.”
The CEO of Binance also addressed the reported SEC action against Paxos. While acknowledging that he is “not a specialist on US laws” and has just read public news stories on the case, CZ stated that he personally agrees with crypto analyst Miles Deutscher’s assessment. Deutscher expressed his thoughts on the SEC’s move against Paxos over Binance USD on Monday morning through Twitter. In a subsequent tweet, Deutscher admitted, “Technically, it does not need to pass the Howey Test to be termed a security.” Nonetheless, he stressed: “The SEC effectively has free liberty to designate an investable asset as a security if it likes to. But it surely sets a frightening precedent.”
“Given the current regulatory uncertainty in certain areas, we will be assessing other initiatives in certain jurisdictions to ensure our customers are not harmed in any way,” Binance’s executive stated. The SEC took action against Kraken last week regarding the bitcoin exchange’s staking program. The parties agreed to end the service for US customers and pay $30 million in disgorgement, prejudgment interest, and civil penalties. Following that, Kraken CEO Jesse Powell urged Congress to introduce legislation to preserve the US crypto business and US consumers “who will now be going abroad to receive services no longer available in the US.”