SEC Ends Investigation into Paxos, Declares Binance’s BUSD Stablecoin Not a Security

In a development in the cryptocurrency space that can bring some additional clarity, the U.S. Securities and Exchange Commission (SEC) has officially concluded its investigation into stablecoin issuer Paxos. The agency’s chief of crypto assets and cyber unit, Jorge Tenreiro, informed Paxos on July 9th that he would not be recommending enforcement action against the firm.

The investigation, which began over a year ago, was initiated after Paxos received a Wells Notice from the SEC, signaling potential enforcement action regarding its partnered stablecoin with Binance, BUSD. The conclusion of this probe is a notable victory for both Paxos and the broader cryptocurrency market, as it clarifies that BUSD is not considered a security and should trickle down to the stablecoin market.

“The termination of this investigation formally is an enormous relief for us,” said Walter Hessert, Paxos’ head of strategy, in an interview with Fortune. “It’s what we expected all along, and it really should create, hopefully, more certainty in the market among what we see as a growing number of large enterprises.”

This decision comes at a time when the SEC has faced several setbacks in its regulatory efforts within the crypto market. Recently, the Commodity Futures Trading Commission (CFTC) Chairman stated that 70% to 80% of all cryptocurrencies are not securities, further complicating the SEC’s stance. The agency’s quiet conclusion of the Paxos investigation marks another instance where it has found itself on the losing side of its regulatory battles.

Paxos and Binance first issued the BUSD token in 2019, and it quickly became one of the market’s leading stablecoins. The year-long investigation into Paxos raised concerns about the regulatory status of BUSD, but a recent federal judge ruling on June 28th played a crucial role in the SEC’s decision. The judge ruled that BUSD sales did not constitute a securities offering, providing much-needed clarity for the stablecoin market.

The stablecoin sector has seen significant growth in recent months, with major traditional finance firms like PayPal and VanEck entering the space. The conclusion of the Paxos investigation is expected to pave the way for more regulatory clarity for U.S.-based industry participants. Stablecoins like BUSD are essential utilities in the crypto economy, offering investors and holders the ability to mitigate risks, find interoperability between blockchains, and eventually offramp to fiat currency.

The SEC’s decision is a pivotal moment for the crypto industry, as it not only solidifies the status of BUSD but also sets a precedent for how stablecoins are regulated. As the market continues to evolve, industry stakeholders are hopeful that this outcome will foster a more predictable and supportive regulatory environment for innovation and growth.

With the SEC’s investigation now behind them, Paxos and Binance can focus on expanding their offerings and further integrating stablecoins into the global financial system. This development underscores the importance of regulatory clarity and the need for balanced oversight to ensure the continued growth and maturation of the cryptocurrency market.

Richard Wells
Digital Assets Desk