Binance CEO Changpeng Zhao (CZ) warned of “profound impacts” on the crypto industry if the stablecoin Binance USD (BUSD) is considered a security. His warning follows an alleged lawsuit by the U.S. Securities and Exchange Commission (SEC) against Paxos, the issuer of Binance USD.
Binance CEO on SEC action against Paxos and BUSD
Following the announcement that the U.S. Securities and Exchange Commission (SEC) intends to take action against Paxos Trust Company over the Binance USD stablecoin (BUSD), Binance CEO Changpeng Zhao (CZ) took to Twitter on Monday to explain the situation.
Paxos, which is regulated by the New York Department of Financial Services, also announced Monday that it “will”…end its relationship with Binance for the BUSD stablecoin“. Paxos also stated that it “will stop issuing new BUSD tokens“on February 21.
“We have been informed by Paxos that they have been ordered to stop minting new BUSD by the New York Department of Financial Services “, tweeted the Binance CEO, noting:
BUSD, while called Binance USD, is not issued or redeemed by Binance … BUSD is a stablecoin fully owned and managed by Paxos.
Changpeng Zhao noted that when Paxos stops minting new BUSD tokens, the market capitalization of the stablecoin “will only decrease over time.“At the time of writing, BUSD has a market capitalization of nearly $16 billion, making it the seventh largest crypto-currency in the world and the third largest stablecoin.
According to Changpeng Zhao, “Paxos will continue to service the product and manage buybacks.“He added that Paxos has assured Binance that the funds are safe.”and fully covered by reserves in their banks, their reserves having already been audited numerous times by various auditing firms.“
Changpeng Zhao on the SEC’s alleged lawsuit against Paxos
Binance’s CEO also commented on the SEC’s alleged lawsuit against Paxos. While admitting that he is not “not an expert on U.S. law“and that he has no additional information about the case other than public news articles, Changpeng Zhao said he personally agrees with crypto analyst Miles Deutscher’s assessment.
The SEC has labeled BUSD as an “unregistered security”, and is suing its issuer, Paxos.
But how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria.
— Miles Deutscher (@milesdeutscher) February 13, 2023
Deutscher tweeted about his opinion Monday morning on the SEC’s action against Paxos on Binance USD. He wrote:
The SEC has called BUSD an “unregistered security” and is suing its issuer, Paxos. But how on earth can a stablecoin be considered a security, when it clearly does not meet the Howey test. No one has ever had the “hope of a profit” by buying BUSD.
In a follow-up tweet, Deutscher acknowledged, “Technically, you don’t have to pass the Howey test to be considered a title“. Nevertheless, he noted, “The SEC basically has free rein to define an investable asset as a security if it wants to. But it certainly sets a scary precedent“.
Commenting on the question of whether BUSD is a stock, Binance’s CEO warned:
IF BUSD is deemed a security by the courts, it will have profound implications for how the crypto-currency industry will (or will not) develop in jurisdictions where it is deemed a security.
“Binance will continue to support BUSD for the foreseeable future“, added Changpeng Zhao, noting:
We do expect users to migrate to other stable currencies over time. And we will make product adjustments accordingly – for example, no longer using BUSD as the primary pair for trading, etc.
“Given the ongoing regulatory uncertainty in some markets, we will be reviewing additional projects in those jurisdictions to ensure that our users are protected from undue harm“, concluded the Binance executive.
Last week, the SEC took action against Kraken over the crypto-currency exchange’s staking program. The exchange agreed to end the service for U.S. customers and pay $30 million in disgorgement, prejudgment interest and civil penalties. Kraken CEO Jesse Powell later urged Congress to pass legislation to protect the U.S. crypto-currency market and American consumers.”who will now have to go overseas to obtain services that are no longer available in the United States.“