Binance CEO Changpeng Zhao (CZ) has warned of “profound impacts” on the crypto industry if stablecoin Binance USD (BUSD) is ruled as a security. His warning followed an alleged lawsuit by the U.S. Securities and Exchange Commission (SEC) against Paxos, the issuer of Binance USD.
Binance’s CEO on SEC Action Against Paxos and BUSD
Following the news that the U.S. Securities and Exchange Commission (SEC) intends to take action against Paxos Trust Company over stablecoin Binance USD (BUSD), Binance CEO Changpeng Zhao (CZ) took to Twitter Monday to explain the situation.
Paxos, which is regulated by the New York Department of Financial Services (NYDFS), also announced Monday that “it will end its relationship with Binance for the branded stablecoin BUSD.” Paxos also said it “will cease issuance of new BUSD tokens” on Feb. 21.
“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS),” Binance’s CEO tweeted, emphasizing:
BUSD, even though called Binance USD, is not issued or redeemed by Binance … BUSD is a stablecoin wholly owned and managed by Paxos.
CZ noted that when Paxos stops minting new BUSD tokens, the stablecoin’s market cap “will only decrease over time.” At the time of writing, BUSD has a market cap of nearly $16 billion, making it the world’s seventh-largest cryptocurrency and the third-largest stablecoin.
According to Zhao, “Paxos will continue to service the product and manage redemptions.” He added that Paxos has assured Binance that funds are safe “and fully covered by reserves in their banks, with their reserves audited many times by various audit firms already.”
CZ on Alleged SEC Lawsuit Against Paxos
The Binance CEO also commented on the alleged SEC lawsuit against Paxos. While admitting that he is “not an expert on U.S. laws” and has no additional information about the case other than public news articles, CZ said he personally agrees with crypto analyst Miles Deutscher’s assessment.
Deutscher tweeted his opinion Monday morning about the SEC action against Paxos over Binance USD. He wrote:
The SEC has labelled 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. No one has ever had ‘the expectation of profit’ when buying BUSD.
In a follow-up tweet, Deutscher acknowledged: “Technically it doesn’t need to pass the Howey Test to be considered a security.” Nonetheless, he stressed: “The SEC basically has free reign to define an investable asset as a security if it wishes to. But it undoubtedly sets a scary precedent.”
Commenting on whether BUSD is a security, the Binance CEO warned:
‘IF’ BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.
“Binance will continue to support BUSD for the foreseeable future,” CZ added, noting:
We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly — e.g. move away from using BUSD as the main pair for trading, etc.
“Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm,” the Binance executive concluded.
Last week, the SEC took action against Kraken over the crypto exchange’s staking program. The exchange agreed to wind down the service for U.S. clients and pay $30 million in disgorgement, prejudgment interest, and civil penalties. Kraken CEO Jesse Powell subsequently urged Congress to pass a law to protect the U.S. crypto market and U.S. consumers “who will now be going offshore to obtain services no longer available in the U.S.”
What do you think about the SEC stating that stablecoin BUSD is an unregistered security? Let us know in the comments section below.
https://news.bitcoin.com/binance-ceo-warns-of-profound-impacts-on-crypto-industry-if-busd-is-ruled-as-a-security/
