Jamie McNeill
According to the Wall Street Journal, the SEC is to be suing Paxos for issuing an unregistered security in the form of BUSD, with is the ticker symbol for Binance USD. In light of the FTX debacle, the SEC wants to display that they are tough on crypto and are willing to take the necessary steps to protect investors, but there are many who believe that such filings are erroneous since BUSD ought not constitute a security.
speculative thought for gensler's latest. maybe at a stretch, SEC might argue 0% return on BUSD is a howey test pass for "expectation of return". there is risk, maybe some term-mismatch ladders underneath, and there's a conflict where the operator profits from the risk.
— Adam Back (@adam3us) February 13, 2023
Despite what the name of the token may have led many to believe, BUSD is owned and issued by Paxos rather than directly through Binance, thanks to the fact that Paxos is extremely compliant with regulations and Binance saw them as the perfect partner for such an offering.
However, the BUSD that is issued on Binance Smart Chain is operated by Binance themselves, which has caused some to raise concerns that they may have potentially minted more than they had in backing for the stablecoin.
There are two versions of BUSD.
One highly-audited version issued by Paxos on Ethereum, and another issued by Binance on BNB, ostensibly backed 1-1 by the Paxos version.
There's no way Binance issued more BUSD than Paxos, right? We'll find out soon. pic.twitter.com/NCGoYKtjfJ
— Stack Hodler (@stackhodler) February 13, 2023
The SEC sent Paxos a letter of “possible enforcement action” for “violating investor protection laws”, since the SEC believes that BUSD could be a security. CZ has publicly challenged this by stating that it is difficult to see how BUSD would pass the Howey Test given that there is no “reasonable expectation of profit” from a stablecoin.
The SEC is also pursuing Kraken over ETH staking
In addition to sending the aforementioned letter to Paxos, the SEC has announced that they are also to be filing a lawsuit against Kraken for their issuance of an unregistered security in the form of ETH staking.
Jesse Powell, the CEO of Kraken, has explained that the company is also facing legal action from the SEC thanks to their offering of ETH staking.
They have stated that they will stand up for themselves and take on the legal challenge, since they don’t believe that they are offering “financial services”, but that they are offering “technological solutions”.
Nevertheless, despite their determination to challenge the SEC moving forward, Kraken has agreed to pay a fine of $30 million and are currently winding down staking services for the time being for US citizens.
Relevant news:
- Kraken Crypto Exchange Might be in Big Trouble for Selling Unregistered Securities if SEC Has its Way
- Decentralised Staking Services and Self-Custody Just Had a Huge Boost from the SEC – Here’s Why
- Kraken Pays out $30m in Settlement with the SEC, Closes Staking for US Customers, Stablecoin Issuer Paxos Faces Investigation
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This article was written for Business 2 Community by Jamie McNeill.
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