Stablecoin issuer Paxos is suddenly under scrutiny by US regulators. Is BUSD just the beginning?

2023-02-13 18:28

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原文标题：《美国 SEC 等监管机构前后夹击 Paxos，醉翁之意或不在 BUSD 》

原文作者： Nancy，PANews

Main points of this article:

- BUSD has sufficient reserve funds and safe custody of funds, so users do not need to worry about withdrawal problems;

- The SEC designates BUSDs as unregistered securities, breaching the scope of existing Howe tests or redefining encryption regulation;

- Stablecoins were supposed to be regulated by the U.S. Treasury, which also involved jurisdictional disputes;

- USDP and PAXG in Paxos' Stabecoin product matrix have not been hit by regulatory crackdown, SEC targeting BUSD is actually targeting Binance.

Paxos, which has been dogged by rumors since last week, is officially under fire from regulators. In addition to being investigated by the New York Department of Financial Services (NYDFS), Paxos was ordered to stop issuing new BUSD tokens. It also received a "Wells notice" from the US SEC for Stabecoin BUSD. Some users have been notified to re-verify KYC or close their accounts.

For a moment, Stablecoin was gripped by FUD sentiment. A Paxos spokesman declined to comment, while Binance said ina statement, "BUSD is issued and owned by Paxos, which licenses only its brand name. Paxos also guarantees that these funds are safe and fully covered by the bank's reserves."

So is there a risk of a run on BUSD? Should Stablecoins be treated as securities? Which department should be responsible for the regulatory jurisdiction of Stablecoin? PANews will answer them one by one.

Will there be a withdrawal crisis in BUSD? Paxos shut down some accounts after SEC warning

Busds are dollar-guaranteed stable assets issued and held in custody by Paxos Trust Company. The supply is pegged to the U.S. dollar at a 1:1 ratio and regulated by the New York State Department of Financial Services.

Currently, BUSD is valued at $16 billion, making it the third Stablecoin, behind USDT and USDC, according to Nansen. Among them, Binance is the largest crypto trading platform using BUSDs, with approximately 90% ($14.4 billion) of BusDs held by Binance addresses. In the past seven days, Binance saw a net outflow of more than 81.4 million BusDs.

但 NYDFS 已要求 Paxos Trust Co. 停止发行更多的 BUSD Token 。根据Binance的声明，Paxos 将继续管理 BUSD 的赎回，BUSD 的市值只会随着时间的推移而下降。Paxos 将继续为该产品提供服务，管理赎回，并将根据需要提供额外的信息。

美国 SEC 等监管机构前后夹击 Paxos，醉翁之意或不在 BUSD

Will there be a run on BUSD? In fact, most of BUSD's reserves, except for a small amount of dollar cash, are made up of less risky U.S. Treasury bills and U.S. Treasury collateralized reverse repurchase agreements. BUSD has a reserve net asset market capitalization of $22.65 billion (reported as of 2022.11), more than the $16.17 billion outstanding today (Feb. 13), according to ChainEye.

However, the SEC enforcement officer issued a letter known as a Wells Notice for securities deemed to be unregistered. Paxos, the US dollar custodian and issuer of BUSD, the issuer of Stablecoin USDP and the force behind itBit, has now told some of its users to re-verify KYC or close their accounts. "Paxos is a regulated financial institution," the company said in an email to users. We are required by law to have a deeper understanding of our customers in order to keep accurate and up-to-date records." For those who were asked to close their accounts, Paxos said it was unable to maintain the accounts at this time because the account information provided by the user or the account activity exceeded the company's risk appetite.

But Paxos still has a chance to argue that the law enforcement action can be overturned. In effect, the Wells Notice is an informal reminder from the SEC's enforcement division before a civil action is filed against a U.S.-listed company. Once the notice is given, the company must respond and negotiate within 30 days, including arguments for why it should not bring charges against the potential defendant, unless granted an extension by the SEC. If the officers still find the company guilty of a securities violation, they recommend an enforcement action to the SEC, which the commissioners then meet to vote on. In other words, if Paxos can't convince the SEC, it has almost zero chance of getting away with it and often ends up having to pay a hefty fine to "settle."

John Reed Stark, former director of the SEC's Office of Internet Enforcement, also stressed on Twitter, "In my 18 years at the SEC Enforcement Division, I can't recall a single time when I issued a Wells Notice and didn't take enforcement action. SEC encryption action continues." That means the SEC's enforcement action against Paxos is pretty much a done deal.

It's worth noting that Fox Business News reporter Eleanor Terrett tweeted that more Wells notices will be released in the next 2 to 3 weeks. Which agencies will be notified? This has whetted the appetite of the crypto community.

In the eyes of some in the industry, the SEC is ostensibly targeting Paxos and BusDs, but in fact targeting Binance. On the one hand, in addition to BUSD, Paxos also issued stablescoins, another US dollar stablescoins USDP (nearly 900 million market value) and gold stablescoins PAXG (nearly 500 million market value). Neither of these two stablescoins has clear information to be regulated. And if you cut off BUSD as a compliance portal, that means you cut off part of Binance's compliance money. In particular, Binance has also temporarily suspended withdrawals of U.S. dollars from bank accounts since February 8. Some interpret this as "foreplay" against Binance's regulation.

In response, CZ, the founder of Binance, said there was no information about the news other than public news articles. The lawsuit is between the SEC and Paxos. "If" BusDs are ruled to be securities by the courts, it will have a profound impact on how the crypto industry develops (or does not develop) in jurisdictions that are ruled as such. Binance will continue to support BusDs for the foreseeable future. We do foresee users migrating to other stablecoins over time. We will adjust our products accordingly. For example, BUSD is no longer used as the primary currency counterpart for transactions. Given the ongoing regulatory uncertainty in certain markets, Binance will review other programs in these jurisdictions to ensure that users are protected from any undue harm.

Stablecoin recognized as security? Or set off a new regulatory scramble

The SEC sued Paxos for violating investor protection laws because its BUSDs were deemed unregistered securities. As required by the federal Securities laws, all offerings and sales of securities are subject to registration under those laws, unless exempt from registration.

The Securities Act itself has a broad definition of securities, mainly based on the interpretation of the US Supreme Court to the Securities Act of 1933 and 1934, including stocks, notes, bonds, and other typical equity and debt instruments. Any form of investment contract. As an independent quasi-judicial institution directly under the United States Federal Government, SEC is responsible for securities supervision and management in the United States. As the highest institution in the securities industry in the United States, it usually adopts the Howie test to judge whether an issue is a security and to supervise it. The Howe test applies to any contract, plan or transaction, regardless of whether it has any of the characteristics of a typical security, and consists of four main elements: the presence of money invested; Whether to invest in a common cause; Whether there is an expectation of investment benefits; Whether to rely on third party efforts to obtain benefits.

In the past, a number of crypto projects have been sued by the SEC for illegal securities offerings, and most have generally settled with hefty fines. However, compared with other types of cryptocurrencies, BUSD, as a cryptocurrency anchored to the dollar, an asset with stable value, has no possibility for investors to have income expectations, which obviously does not meet the characteristics of Howe test. Even if BUSD holders indirectly hold the bond, they do not benefit from it.

Still, the SEC's Howe test has been considered limited. For example, Hester Peirce, commissioner of the U.S. SEC, has said that the Howe test may not apply to cryptocurrencies and that the SEC needs to be more aware because many cryptoassets have their own unique characteristics. So the SEC seems to be redefining the "Howe test" for encryption projects.

Not only that, but in the past, since Stablecoins were treated as money because of the fiat currency anchored behind them, they were usually managed by the US version of the "banking Regulatory Commission", the Office of the Comptroller of the Currency (OCC), part of the US Treasury. The OCC has been friendly to stablecoin regulation, including allowing federally regulated banks to use stablecoin for payments and other activities. Michael Hsu, the acting administrator of the OCC, has said on the need for Stablecoin regulation that regulating stablecoin issuers like regulating banks could allow innovation to flourish in the crypto industry, and while innovation thrives in an uncertain environment, a solid foundation can help, especially when it comes to funding and trust. He also urged fellow regulators not to rush to regulate encryption, to step up cross-agency efforts and not to lower regulatory standards in order to "over-accommodate" the industry, even if they are seen as "anti-innovators".

However, with the SEC's efforts to regulate stablecoin, there may be jurisdictional disputes, and different regulators have very different definitions of cryptocurrency. The SEC and the Commodity Futures Trading Commission (CFTC) have been locked in a battle over cryptocurrency regulation, and a formal agreement has been reached to avoid cryptocurrency regulatory loopholes.

Another round of regulatory tug-of-war over Stablecoins could follow, with USDT issuer Tether paying fines to the New York Attorney General's Office and the CFTC to settle charges. However, with a future Responsible Financial Innovation Act, long-standing uncertainty over financial regulators' jurisdiction over digital assets may be resolved.

It's worth noting that the SEC's oversight of Paxos is causing a lot of backlash in the crypto community, with Messari founder Ryan Selkis tweeting: "My new goal in life is to end Gary Gensler's [Securities and Exchange Commission chairman] political career and make him the reason Joe Biden lost his re-election. I'll be joined by Brian [Coinbase CEO Brian Armstrong], Jesse [Kraken founder Jesse Powell], and dozens of others who have spent 10 years putting America in a position to win the next major technological frontier. I will spend every ounce of energy, financial and political capital I have to fight the morally corrupt and corrupt enemies of cryptocurrencies. Smart regulation is important. A de facto ban will be fought ruthlessly."