The SEC’s decision to drop the investigation comes after it failed multiple times in notable court rulings.
Stablecoin issuer Paxos recently announced that the US Securities and Exchange Commission (SEC) has stopped its investigation into Binance USD (BUSD), the stablecoin branded by Binance.
On July 9, Paxos received a formal termination notice from the SEC, ending a probe that had raised significant concerns within the crypto community. In a statement on July 11, Paxos reaffirmed its stance that its USD-backed stablecoins are not securities under federal securities laws. The New York-based company criticized the Wells notice as unwarranted and unjustified. It stated:
“Paxos has and always will prioritize the safety of customer assets. Paxos-issued stablecoins are always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts.”
Notably, Paxos partnered with the crypto exchange Binance in September 2019 to launch BUSD. The token quickly became a popular name in the stablecoin market, mainly because of its integration within the Binance ecosystem. However, it never surpassed competitors like Tether (USDT) and USDC.
The SEC’s investigation began in February 2023, when Paxos received a Wells notice from the regulator. The notice argued that BUSD was an investment contract, earning profits through its reserves, which benefited both Binance and Paxos. Therefore, the SEC believed that the stablecoin was an unregistered security and that Paxos had violated federal securities laws.
Shortly after the SEC issued this notice, the market cap of BUSD started to decline. In February 2023, BUSD’s market cap exceeded $15 billion, but it has since fallen to just $69 million.
At the time, Paxos said it “categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws”.
SEC’s Legal Failures
The SEC’s decision to drop the investigation comes after it failed multiple times in notable court rulings. In July last year, a federal judge ruled in SEC vs Ripple that the XRP token was not a security regarding programmatic sales on exchanges. In June 2024, a judge cited this ruling in the SEC’s case against Binance and dismissed similar claims related to BUSD.
The termination of the investigation against BUSD is seen as a big win for the stablecoin sector. In an interview with Fortune, Walter Hessert, Paxos’ head of strategy, stated that “the termination of this investigation formally is an enormous relief for us. It’s what we expected all along, and it really should create, hopefully, more certainty in the market among what we see as a growing number of large enterprises”.
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