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Breaking SEC Drops Probe into Paxos, Signaling Stablecoins May Not Be Securities

2 mins
Updated by Daria Krasnova
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In Brief

  • SEC ends Paxos probe, deciding against enforcement action for BUSD stablecoin after a year-long investigation.
  • Court ruling favoring Binance influences SEC’s decision; BUSD sales deemed not a securities offering.
  • Paxos ended BUSD minting and its partnership with Binance, anticipating regulatory clarity for the market.
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The crypto industry has long wanted clear rules on whether stablecoins should be considered securities.

A recent move by the Securities and Exchange Commission (SEC) to quietly end its investigation into Paxos, a stablecoin issuer from New York, suggests that they are not in most cases.

SEC Ends Paxos Investigation, Clarifies Stablecoin Status

On July 9, Jorge Tenreiro, acting chief of the SEC’s crypto assets and cyber unit, told Paxos that he would not recommend enforcement action, according to a letter obtained by Fortune. This conclusion came more than a year after Paxos received a Wells notice from the SEC. The warning indicated a possible enforcement action regarding the BUSD stablecoin, issued in collaboration with Binance.

SEC letter to Paxos
SEC Letter to Paxos. Source: Paxos

A recent court ruling favoring Binance, which stated BUSD sales were not a securities offering, likely influenced the SEC’s decision. As Congress continues to delay new regulations for the crypto sector, many see the SEC’s move as a positive development.

“The end of this investigation is a huge relief for us,” said Walter Hessert, head of strategy at Paxos. “We expected this outcome and it should provide more certainty in the market for large enterprises.”

Paxos introduced BUSD with Binance in September 2019. Although BUSD did not overtake its competitors, Tether’s USDT and Circle’s USDC, it became a major player due to its integration with Binance’s ecosystem.

The SEC had argued that BUSD was a security because it generated profits through its reserves, with some benefits passed on to Binance users. In February 2023, Paxos disagreed with this view, insisting dollar reserves fully backed the stablecoin. However, the company has terminated its relationship with Binance and stopped minting BUSD

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

BUSD markety cvap
BUSD Market Cap. Source: CoinGecko

The recent verdict could strengthen the stablecoin sector in the US, which has faced regulatory uncertainty, leading some companies to explore opportunities abroad.

“This decision by the SEC shows that there is an evolving landscape of compliant ways to interact with decentralized technologies. It does not necessarily answer fundamental questions that the industry has around how regulators and policymakers intend to approach innovations around decentralization, but the climate for answers to those questions is steadily improving,” Jason Rozovsky, Head of Legal at Interop Labs, told BeInCrypto.

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Daria Krasnova
Daria Krasnova is an accomplished editor with over eight years of experience in both traditional finance and crypto industries. She covers a variety of topics, including decentralized finance (DeFi), decentralized physical infrastructure networks (DePIN), and real-world assets (RWA). Before joining BeInCrypto, she served as a writer and editor for prominent traditional finance companies, including the Moscow Stock Exchange, ETF provider FinEx, and Raiffeisen Bank. Her work focused on...
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