Paxos Halts BUSD Minting as SEC Prepares Lawsuit

The SEC is reportedly taking aim at the owner and issuer of the world’s third-largest stablecoin, Binance USD.

The U.S. Securities and Exchange Commission plans to sue Paxos Trust for violating investor protection laws, the company has confirmed to Decrypt.

Paxos said that it was halting the minting of BUSD and would “end its relationship with Binance” for the stablecoin in a press release. It also made assurances that existing BUSD tokens are fully backed and will be redeemable for at least a year.

Binance founder and CEO CZ tweeted that he was also informed by Paxos that the New York Department of Financial Services (NYDFS)—an agency Paxos is registered with and regulated by—has directed the company to cease issuing BUSD.

Paxos Trust has owned and operated the BUSD stablecoin business since 2019, when it entered into a licensing agreement with Binance, the world’s largest crypto exchange, to use its name and brand.

According to CoinGecko, BUSD has a market cap of over $16 billion—due in large part to its prominence on Binance’s exchange. However, as it is a stablecoin, its market cap and trading volumes do not affect the value of the product, at least in theory.

BUSD and Paxos

Interestingly, Paxos is only being directed by NYDFS to shut down its BUSD stablecoin, which customers can redeem for cash or convert to Pax Dollar (USDP), “a regulated US dollar-backed stablecoin also issued by Paxos Trust.”

Paxos made no mention of the SEC or any potential lawsuit in the statement released today but included six instances of the word “regulated.”

Binance has taken a hit from today’s news, with the crypto exchange facing a loss in licensing fees and the eventual decline of Binance USD’s marketing power. Binance’s non-stablecoin token, Binance Coin (BNB) dropped by 5% following the news, according to CoinGecko.

SEC ramps up regulatory efforts

Over the past few months, the Securities and Exchange Commission has become increasingly aggressive in its approach toward the crypto industry.

Just last week, crypto exchange Kraken reached a $30 million settlement with the SEC over its staking service offered to U.S. customers. And SEC chair Gary Gensler has warned crypto companies that the “runway is getting awfully short” regarding compliance.

Gensler’s enthusiasm for the regulator’s crypto crackdown isn’t shared by all his colleagues, however. In a dissent to last week’s settlement with Kraken, SEC commissioner Hester Peirce wrote that the regulators “do not initiate a public process to develop a workable registration process that provides valuable information to investors, [we] just shut it down.”

Editor's note: this article has been updated to reflect direct confirmation from Paxos of the SEC action.