Morgan Stanley says decline in stablecoin issuance could impact crypto-currency trading

A decline in stablecoin issuance is bad news for crypto-currency trading, according to Morgan Stanley. In a research report released Monday, the New York banking giant highlighted the benefits of stablecoins for crypto-currency trading. In addition, Morgan Stanley noted that stablecoin products could potentially compete with the traditional banking system.

Morgan Stanley expects increased government regulation on stablecoin issuance

The Morgan Stanley report also indicates that stablecoin issuance will likely be subject to increased regulation by the U.S. government due to its growing popularity. However, some of these regulatory efforts may not be beneficial to stablecoin support because of the issue of unregistered securities. For example, Morgan Stanley pointed out that U.S. regulators have begun to limit stablecoin products, despite their importance to crypto trading. An excellent example of these government actions on stablecoin issuance is the recent Paxos BUSD case.

Paxos faces SEC lawsuit over unregistered BUSDs

Yesterday, reports indicated that stablecoin issuer Paxos has received a notice of suit from the Securities and Exchange Commission (SEC). According to the Commission, the blockchain company violated investor protection rules regarding the issuance of unregistered Binance USD securities.

Although Paxos remained mum about the SEC’case at the time, a Binance spokesperson attempted to shed light on Paxos’s BUSD tokens. According to the spokesperson, although Binance licenses its brand to Paxos, BUSD is a product issued and owned by Paxos. In addition, the Binance representative also stated that Paxos is subject to regulation by the New York Department of Financial Services (NYDFS). Stressing the need for stable currencies, the spokesperson explained:

“Stablecoins are a critical safety net for investors seeking a safe haven from volatile markets and limiting their access would directly harm millions of people around the world. We will continue to monitor the situation, [en attendant], our global users have a wide range of stablecoins at their disposal.”

NYDFS Forbearance Order Regarding Stablecoins

However, in the wake of the Binance spokesman’s assertion, the NYDFS ordered Paxos to immediately cease issuing BUSD stablecoins. This decision is the first major action taken by the financial services regulator against the stablecoin market.

According to the NYDFS order, Paxos can no longer issue stablecoins but can still provide services for the product. In addition, the company could also handle redemptions until February of next year. In an announcement, Paxos said:

“New and existing Paxos customers will be able to redeem their U.S. dollar funds or convert their BUSD tokens into Pax Dollar (USDP), a regulated stablecoin backed by the U.S. dollar, also issued by Paxos Trust.”

In addition, Paxos and Binance have previously assured customers that their funds are safe and have adequate collateral reserves. In addition, Paxos also disclosed that the NYDFS’order does not affect its native USDP and pax gold (PAXG) stablecoin.

Binance CEO Changpeng Zhao spoke on the development of Paxos-NYDFS and promised to support the BUSD in the near future. However, Zhao also admitted that users would invariably migrate to other stable currencies over time, and Binance “will make product adjustments accordingly.“