BREAKING: SEC Drops Paxos Probe, Validates BUSD Non-Security Status

In what could be a major victory for stablecoin issuance and regulation in the US, the Securities and Exchange Commission (SEC) has decided to drop its investigation into Paxos, providing a major boost to the stablecoin sector.

According to a Fortune report on the matter, the decision was communicated to Paxos by Jorge Tenreiro, acting chief of the SEC’s crypto assets unit, and comes more than a year after the regulator sent a Wells notice to the New York-based institution, indicating a possible enforcement action over the Binance USD, or commonly known as BUSD, stablecoin, which Paxos developed in partnership with Binance.

Paxos Emerges From Year-Long Wells Notice Shadow

Per the report, Walter Hessert, Paxos’ head of strategy, expressed relief at the termination of the investigation, stating that it aligns with their expectations and brings much-needed certainty to the market.

Paxos initially launched BUSD in partnership with Binance in September 2019. While BUSD did not overtake its competitors Tether’s USDT and Circle’s USDC stablecoisn in terms of market dominance, it gained its status as a widely used stablecoin largely due to its integral role within the Binance ecosystem.

While BUSD maintained a peg to the US dollar, the SEC later claimed in a lawsuit against Binance that the stablecoin should be classified as an investment contract and therefore a security under the Howey test, which many crypto participants believe is an outdated framework for regulating the crypto market.

BUSD Validated As Non-Security

Paxos, in response, disagreed with the SEC’s characterization, asserting that BUSD was fully backed by dollar-denominated reserves in a 1:1 ratio, without delving into the agency’s claims regarding profit distribution.

The investigation persisted for over a year, as confirmed by the SEC in response to a Freedom of Information Act request from Fortune, with the agency stating its active and ongoing status as of July 3.

However, it appears that the SEC’s stance shifted following a federal judge’s ruling on June 28, which favored Binance and concluded that the sale of BUSD did not constitute a securities offering, leading to the dismissal of the charges.

Paxos