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

The U.S. Securities and Exchange Commission (SEC) has given the stablecoin sector a major boost by deciding to drop its investigation into Paxos, in what could be a major win for stablecoin issuance and regulation.

According to a Fortune report on the matter, the decision was communicated to Paxos by Jorge Tenreyro, interim head of the SEC’s cryptocurrency division, and the regulator Wells Notice This comes as the New York-based institution signals possible enforcement action against the Binance USD (commonly known as BUSD) stablecoin, developed by Paxos in partnership with Binance.

Paxos emerges from the well of a year – watch out for shadows

according to reportPaxos head of strategy Walter Hessert expressed relief at the conclusion of the investigation, saying it was in line with the firm’s expectations and brought much-needed certainty to the market.

Paxos first launched BUSD in partnership with Binance in September 2019. While BUSD has not been able to overtake competitors Tether’s USDT or Circle’s USDC stablecoins in terms of market dominance, its integral role within the Binance ecosystem has earned it a place as a widely used stablecoin.

Although BUSD remained pegged to the U.S. dollar, the SEC later argued in its 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an investment contract and therefore a security under the Howey Test, which many crypto participants consider to be an outdated framework for regulating the cryptocurrency market.

BUSD Qualifies as a Non-Securities

Paxos responded by disputing the SEC’s explanation and, without delving into the SEC’s assertions regarding profit sharing, arguing that BUSD is fully backed by dollar-denominated reserves on a 1:1 basis.

The SEC confirmed in response to a Fortune Freedom of Information Act request that the investigation had lasted for more than a year, and as of July 3rd, it said the investigation was active and ongoing.

However, the SEC’s position appears to have changed following a federal judge’s ruling on June 28, which ruled in Binance’s favor, concluding that the sale of BUSD did not constitute a securities offering and dismissed the charges.

The daily chart shows BNB price recovery. Source: BNBUSD on TradingView.com

At the time of writing, Binance’s native token, BNB, is trading at $532, up 1% in 24 hours.

Featured image from DALL-E, chart from TradingView.com

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