Paxos BUSD Action – Five Things We Learnt

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Yesterday’s news agenda was dominated by Paxos ceasing support for the Binance USD (BUSD) stablecoin after attention from the the Securities and Exchange Commission (SEC) over the BUSD stablecoin. However, since then a great deal has emerged which suggests there is plenty more to run on this story. Here’s what we know so far.

NYDFS and SEC Involved

After the SEC issued its Wells notice, which essentially asked Paxos why it shouldn’t be sued over issuing the BUSD stablecoin (which it said was an unregistered security), the New York Department of Financial Services (NYDFS) also got involved, telling Paxos, which holds a New York Bitlicense, to “cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.”

This is in relation to concerns that BUSD is not 100% backed by fiat currencies, as Binance recently admitted it historically hasn’t been.

Circle Snitched on Binance

How did the NYDFS find out about Binance’s historical backing issues? They were grassed up by Circle, whose USDC coin was delisted by Binance in September last year. Circle boss Jeremy Allaire was positive when the news came out at the time, but it seems he has exacted a swift, and damaging, revenge.

Well played, sir.

Binance Will “Move Away” From BUSD

Binance CEO Changpeng Zhao said in a tweet thread that that the exchange will “move away” BUSD as a trading pair, even if it isn’t ruled a security, partly because with no fresh coins the market cap will only diminish and users will “migrating to other stablecoins over time”.

He added that Binance will be “reviewing other projects in those jurisdictions (affected by such regulations) to ensure our users are insulated from any undue harm.”

BUSD Is Not a Security

It’s really not clear how the SEC came to the conclusion that BUSD is a security. There are four prongs to the Howey test, two of which apply to profits:

  • There is an expectation of profits
  • Any profit comes from the efforts of a promoter or third party


The suggestion that crypto users buy BUSD with the expectation of profit is utterly baffling, and it’s hard to see that the SEC truly believes this. As for other people doing the work to earn this profit, who are they going to credit, Uncle Sam?

Paxos Will Fight

Paxos issued a statement on Monday afternoon in which it said that it “categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws”, adding:

BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.

Given the SEC’s modus operandi to date, this suggests that a lawsuit is imminent.