Why Exactly Binance Stablecoin (BUSD) Was Being Targeted by SEC?

New York regulator NYDFS came down on stablecoin issuer Paxos last week over Binance USD (BUSD), and Paxos had to stop minting the stablecoin, which was thought to be a part of the major crackdown against crypto-related companies.

Regulators’ Crackdown on BUSD Makes no Sense

However, it doesn’t make any sense because the real reason behind the crackdown was never made clear by the regulator, and also, BUSD is a stablecoin that is pegged 1:1 to the US dollar, so it has very little volatility, as was pointed out by Altcoin Daily’s Aaron Arnold.

As a result of its consistent nature, the SEC is of the opinion that it cannot be classified as a security. New information has been disclosed that Circle, another stablecoin issuer in charge of USDC, had filed a regulatory complaint against Binance over token management in the previous year. Circle’s complaint said that the biggest cryptocurrency exchange in the world did not have sufficient cryptocurrency in its reserves.

It’s important to realize that Binance does not really own BUSD; Paxos does. Binance has officially signed into a license arrangement with Paxos, the firm that owns the stablecoin and issues it, in order to utilize the company’s name and logo.

On the other hand, according to the NYDFS, Paxos did not manage BUSD in a “safe and sound manner.” It’s interesting to note that Paxos is a trusted company chartered by the New York Department of Financial Services itself.

The crypto world has been in a state of turmoil due to this entire problem, and Binance CEO Changpeng Zhao has emphasized that they don’t actually own the stablecoin. Paxos has also informed them that the funds are secure and completely covered by reserves in their banks, and the reserves have been reviewed many times by several different audit companies.

The stablecoin issuer will continue to service the product and manage redemptions, says CZ. But eventually, BUSD’s market cap will only decrease over time, and the stablecoin will slowly fade into the shadows.