The decision comes as the securities watchdog continues to go after other crypto companies
The US Securities and Exchange Commission (SEC) has signaled a potential shift in its approach to stablecoin regulation by dropping its investigation into Paxos Trust Company, the issuer of the Binance USD (BUSD) stablecoin. The decision, announced in a letter from the SEC’s crypto assets and cyber unit on July 9, comes after months of contention between the regulator and Paxos.
In February 2023, the SEC issued a Wells notice to Paxos, indicating its intention to pursue enforcement action against the company. The SEC’s claim centered around BUSD being an unregistered security, suggesting Paxos had violated federal securities laws. Paxos vehemently contested this claim, maintaining that its USD-backed stablecoins, including BUSD, did not meet the criteria of securities under federal regulations.
The SEC’s decision to abandon the investigation aligns with recent court rulings that have gone against the regulator’s stance on certain digital assets. A pivotal case involved Ripple Labs, a blockchain company whose XRP token was deemed not to be a security by a federal judge in July 2023.
This decision, in SEC v. Ripple, cast doubt on the SEC’s broader strategy for classifying cryptocurrencies as securities. More recently, in June 2024, a judge overseeing the SEC’s case against Binance referenced the Ripple ruling while dismissing a claim related to BUSD.
While the SEC has dropped its investigation against Paxos, it’s important to note that the regulatory landscape surrounding cryptocurrencies remains complex. The SEC currently has ongoing enforcement actions against several prominent crypto firms, including Ripple, Binance, Kraken, and Coinbase.
However, a recent Supreme Court ruling could force the SEC to re-evaluate its legal arguments in these cases. The ruling eliminates the requirement for courts to automatically defer to federal agencies in interpreting policies, potentially impacting how courts view the SEC’s classification of certain crypto assets as securities.
The SEC’s decision regarding Paxos marks a significant development in the ongoing saga of cryptocurrency regulation. While the broader legal environment remains unsettled, this recent action suggests the SEC might be adjusting its approach to stablecoins, potentially paving the way for clearer regulatory frameworks in the future.
