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Paxos Ordered By Regulators To Stop Issuing Binance Stablecoin, BUSD

The regulators at the SEC believe that BUSD is a security and that Binance and Paxos are violating investor protection laws by not registering the asset with the SEC.

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CoinSnacks
February 16, 2023 • Estimated Reading Time: 5 minutes

How many hits can Binance take?

That is the question we all find ourselves asking right now with the news that blockchain FinTech Paxos is no longer minting new BUSD (Binance Stablecoin) tokens following regulatory pressure.

As a refresher, BUSD is a stablecoin that was launched in 2019 by Paxos and Binance and is pegged 1:1 to USD. BUSD is currently the third largest stablecoin with a total supply of $15 billion+.

An Investigation And An Order

The regulators at the SEC believe that BUSD is a security and that Binance and Paxos are violating investor protection laws by not registering the asset with the SEC.

To make matters worse, the New York Department Of Financial Services has also ordered Paxos to stop issuing BUSD.

So, staring down the barrel of an NYDFS order and SEC lawsuit, Paxos has decided to end its relationship with Binance.

The Consequences

Paxos’s move significantly affects multiple prominent crypto players:

  • Paxos is losing a good amount of revenue by not being able to mint BUSD. 

  • Binance is the big loser here with BUSD all but done for in the United States. This has two effects. One, it wipes out a huge market for the very profitable BUSD, which isn’t a great development for Binance’s books. Two, it puts a big old cloud of FUD over the exchange as people worry if it will survive the oncoming regulatory onslaught. The result is $2.8 billion in withdrawals in just 48 hours and $700 million BUSD burned in just 27 hours.

  • Competing stablecoins are the big winners. People who hold and use BUSD will have to migrate elsewhere for their stablecoin needs. This means increased demand for Tether, USDC, Dai, Frax, and every other major stablecoin.

Overall, things aren’t looking great for Binance’s future in the US. The regulators have taken a keen interest in CZ’s crypto playground, and CZ is already over it, telling crypto entrepreneurs to leave the US and their bothersome regulators.

Be Careful Out There

In December of 2022, we wrote the following which is worth repeating:

USDC, USDT, BUSD…

There are a lot of similar-sounding stablecoins that all seem to do the same thing.

And with Binance temporarily pausing USDC withdrawals, USDT on the cover of the WSJ this morning, reports that large hedge funds are shorting USDT, and Coinbase asking users to exchange their USDT for USDC, we have received an inflow of inquiries wondering just how safe stablecoins are.

Although a lot of FUD is justified right now in the crypto ecosystem, overall, stablecoins seem to be standing on solid footing.

But we’ll admit, it’s very difficult for a lay person to understand what is going on.

So put it this way…

There is still somewhat of a stablecoin war going on between exchanges and market makers… and, for safes, we’re urging investors not to get caught in the crossfire.

As we have been suggesting for years now, your best bet is to play it safe and (1) only invest in things you understand, (2), take your assets off of centralized exchanges, or at a very minimum, put them onto western, regulated exchanges with proof of reserves, and (3), if you do need to use stablecoins, use them only for swapping in and out of positions as there is really no use case for allocating your capital into stablecoins for a long period of time.

We have also been wary of putting faith in CZ and his Binance exchange. See here:

For years now, CoinSnacks has written with a healthy level of skepticism regarding CZ and Binance. And with the SEC investigating the company and interesting ties to Justin Sun, we continue to live by one of Bitcoin’s original sayings: Don’t trust, verify.