SEC backtracks on BUSD security claim, ends Paxos probe

The crypto industry notched another win against the U.S. SEC, scoring a de-factor admission that stablecoins are not securities.

The U.S. Securities and Exchange Commission (SEC) closed an investigation into New York-based blockchain infra company Paxos over its Binance-branded stablecoin, Binance USD (BUSD). 

In February 2023, Paxos received a Wells Notice informing the company of a probe and a potential lawsuit. The SEC accused the firm of offering registered securities via BUSD, prompting New York authorities to order Paxos to cease minting. More than a year later, the SEC has ended the inquiry and closed the case. 

“We have concluded the investigation as to Paxos Trust Companu, LLC. Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Paxos”, read a letter signed by Jorge Tenreiro, acting chief of the SEC’s Crypto Assets and Cyber unit. 

No repercussions for the SEC?

The Paxos probe part was of the so-called “Operation Choke Point 2.0”, a wide-sweeping SEC crackdown on several cryptocurrency service providers. 

At the time, the SEC also went after Binance and Coinbase for alleged securities violations. Due to the enforcement action, Paxos was forced to wind down the BUSD token and place the stablecoin in a redemption-only status until at least February this year.

The Binance-affiliated stablecoin, which once peaked at a $23 billion market cap, now has a paltry $70 million supply. Following the SEC’s dropped investigation, industry proponents questioned whether the regulator should be held accountable for its aggressive approach. 

Nevertheless, the development clarifies the status of stablecoins as non-securities and perhaps strengthens the argument for a U.S crypto regulatory framework.