BUSD

Tether supply hits $80B for the first time since May 2022 — Stablecoin rivals stumble

The supply of USDT across cryptocurrency exchanges has dropped 28% in 2023, hinting at an overall decline in demand for stablecoins.

Tether (USDT) continues to benefit from the ongoing turmoil in the U.S. dollar-backed stablecoin industry, with its market capitalization growing significantly in Q1 2023 at other stablecoins’ expense.

Tether market cap reaches $80 billion

On April 6, the circulating market capitalization of USDT surpassed $80 billion for the first time since May 2022, with a gain of $15 billion so far in 2023.

USDT circulating market cap 12-month performance. Source: Messari

On the other hand, the market caps of its chief rivals, namely USD Coin (USDC) and Binance USD (BUSD), fell by about $12 billion and $9.4 billion, respectively.

USDC and BUSD circulating market cap year-to-date performance. Source: Messari

Tether benefits from non-U.S. status

Crypto traders opted for Tether given the growing concerns around USD Coin and Binance USD.

Notably, USDC’s market capitalization slipped due to its $3.3 billion exposure to the now-collapsed Silicon Valley Bank and additional exposure to Silvergate Bank, while BUSD suffered after New York regulators ordered Paxos to shut down the stablecoin’s issuance.

USDC weathered the crisis after the Federal Deposit Insurance Corporation’s assurance that it would make depositors at the insolvent banks whole. As a result, the stablecoin recovered its dollar peg after losing it at the peak of the banking crisis in mid-March. 

USDC price performance YTD. Source: Messari

But a growing crypto crackdown in the U.S. has prompted investors to maintain distance from regional firms. For instance, Paxos confirmed that the Securities and Exchange Commission treats BUSD as an unregistered security.

On the other hand, Tether is a non-U.S. firm and has repeatedly assured that it has no exposure to insolvent U.S. banks. Nonetheless, it has faced scrutiny over its reserve assets and lack of proper audits for years, despite such issues becoming less of a concern among traders.

USDT supply drops across exchanges

Interestingly, the growth in the USDT circulating supply has coincided with a drop in its supply across exchanges.

Related: USDT issuer Tether has up to $1.7B in excess reserves, CTO says

Tether’s balance on exchanges has dropped 28% year-to-date to 12.88 billion USDT, according to Glassnode. In comparison, the aggregated stablecoin balance across exchanges has dropped by 41% YTD to $22.31 billion.

USDT vs. rival stablecoin balances across crypto exchanges. Source: Glassnode

The decline in stablecoin reserves coincides with a crypto market rally, suggesting that traders have been converting their crypto dollars to buy Bitcoin (BTC) and Ether (ETH).

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Binance-CFTC FUD puts BNB price at risk of dropping toward $200

Recent BNB price trends show that the token is declining in the short term after regulatory crackdowns. However, this time, the correction may last longer.

BNB (BNB) looks set to wipe out its March gains entirely as investors turn their attention to the latest regulatory crackdown on Binance, the world’s leading crypto exchange by volume.

BNB price logs worst daily performance in over a month

On March 27, the United States Commodity Futures Trading Commission sued Binance and its CEO, Changpeng “CZ” Zhao, alleging that the company illegally offered crypto derivatives services to Americans and facilitated illicit financial activity.

BNB dropped by over 5.5% to $305 on the announcement day, logging its worst daily performance since Feb. 13, when its price dropped by over 5.8% due to another regulatory crackdown involving Binance-branded stablecoin Binance USD (BUSD).

BNBUSD daily price chart. Source: TradingView

BNB’s price stabilized on March 28, wobbling between gains and losses as CZ refuted CFTC’s allegations. However, the BNB/USD pair risked falling further if one considers its recent response to regulatory actions. 

For instance, the New York regulator’s BUSD crackdown in February 2023 preceded a 15%-plus BNB price decline.

BNB price reaction to regulatory crackdowns since 2022. Source: TradingView

Similarly, BNB plunged by up to 10.75% after the Dutch Central Bank slapped a $3.4-million fine on Binance in July 2022 for offering unlicensed crypto services. It also dropped 25% in February 2022 after Binance halted its operations in Israel, fearing a crackdown.

Rising wedge breakdown underway

The Binance-CFTC FUD has triggered a bearish reversal setup previously covered in February. 

Related: Here’s how Binance is mitigating its stablecoin needs after BUSD ban

This setup involves a rising wedge pattern whose breakdown could lead to a 25% price correction toward $250 by the end of March. The March banking crisis and its positive impact on top-ranking crypto assets may have delayed the bearish call. 

BNB/USD daily price chart featuring rising wedge breakdown setup. Source: TradingView

Simultaneously, BNB is eyeing an extended price decline toward $200 due to the formation of another rising wedge pattern on the daily chart, as shown below.

BNB/USD daily price chart. Source: TradingView

Therefore, BNB’s price could drop by as much as 30% by April when measured from current price levels. 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Binance mints 50M TrueUSD days after Paxos ordered stop issuing BUSD

Despite the minting of $50 million in TUSD, Zhao previously said the regulatory crackdown on stablecoins in the U.S. will cause the USD-back stablecoin market to “shrink.”

Only days after reports of United States regulatory scrutiny of Paxos and Binance USD (BUSD),  cryptocurrency exchange Binance has minted nearly $50 million worth of TrueUSD (TUSD).

The transaction took place on Feb. 16, according to data from Etherscan, and also comes two days after Binance CEO Chanpeng “CZ” Zhao said in a Feb. 14 Twitter Spaces that Binance would look to “diversify” its stablecoin holdings away from BUSD.

Despite minting nearly $50 million in TUSD from the TrustToken platform’s smart contract, CZ had earlier said that the recent regulatory action by the United States Securities Exchange Commission and the New York Department of Financial Services over the long term may lead to a fall in the dominance of U.S. dollar-backed stablecoins.

“I think with the current stances taken by the regulators on the U.S. dollar-based stablecoin, the industry will probably move away to a non-U.S. dollar-based stablecoin, back to algorithmic stablecoins.”

“There’s multiple agencies putting applied pressure there. It is just going to shrink the U.S. dollar-based stablecoin market,” he added.

CZ said that “this has prompted us to look for more options in different places” and that they’re now exploring other options.

While the CEO stated that Binance would provide more support for USD Coin (USDC) and Tether (USDT) over the short term — in the expectation that BUSD “winds down over time” — he added that they’re now looking to explore more into euro- and Japanese yen-based stablecoins.

As for BUSD, CZ said that “the existing circulating supply of BUSD is there and safe, and as more people want to redeem, they will be burned.”

Interestingly, the Binance CEO added that he was never too bullish on the success of the Binance-branded BUSD stablecoin anyway:

“To be honest BUSD was never a big business for us, when we started I actually thought the BUSD project may fail, so we actually don’t have very good economics on that collaboration.”

Interestingly, in September, TUSD was one of the stablecoins that Binance auto-converted to BUSD to enhance liquidity and capital efficiency for its users. Other stablecoins that got auto-converted were USDC and USDP Stablecoin (USDP). This drove up BUSD’s share in the stablecoin market from 10% to 15% in a matter of weeks.

Related: TrueUSD and Balancer Offer Liquidity Providers TUSD and BAL Rewards from Stablecoin Pool Incentive Program

TrustToken launched TUSD on March 5, 2018. It exists on the Ethereum, Avalanche, Polygon and Tron networks.

New TUSD is minted whenever a buyer wires USD to a third-party escrow account that holds USD deposits on Prime Trust’s behalf. Once received, TUSD will be transferred in a 1:1 ratio to the USD sent to the trader’s nominated ERC-20 or BEP-2 wallet address.

Bitcoin bulls aim to hold this week’s BTC gains leading into Friday’s $675M options expiry

$675 million in BTC options are set to expire on Feb. 17, but bears could aim to take control by pushing Bitcoin’s price below $22,000.

The price of Bitcoin (BTC) gained 6.3% just two days after reaching $21,370 on Feb. 13, which was the lowest level seen in more than three weeks. The price recovery can be partially explained by the Feb. 14 U.S. Consumer Price Index data displaying a 6.4% increase in year-over-year inflation in January.

While the U.S. Federal Reserve continues to monitor the overheated economy, the most likely scenario is further interest rate hikes to curb inflation. The unintended consequence is the heightened government debt cost, creating a bullish environment for scarce assets such as commodities, stock market and cryptocurrencies.

The price gain of Bitcoin practically extinguished bears’ expectation for a sub-$21,500 options expiry on Feb. 17, so their bets are unlikely to pay off as the deadline approaches.

Bitcoin investors’ primary concern is the possibility of further impacts from regulators following the U.S. Securities and Exchange Commission ordering Kraken to halt its staking rewards program on Feb. 9 and the crackdown on Binance USD (BUSD) stablecoin issuing on Feb. 13.

Even if the newsflow remains negative, bulls still can profit from Feb. 17’s options expiry by keeping the BTC price above $22,500, but the situation can easily flip and favor bears.

Bears were not expecting the $22,000 level to hold

The open interest for the Feb. 17 options expiry is $675 million, but the actual figure will be lower since bears were expecting sub-$22,000 price levels. These traders became overconfident after Bitcoin traded below $21,500 on Feb. 13.

Bitcoin options aggregate open interest for Feb. 17. Source: CoinGlass

The 1.12 call-to-put ratio reflects the imbalance between the $355 million call (buy) open interest and the $320 million put (sell) options. If Bitcoin’s price remains near $22,700 at 8:00 am UTC on Feb. 17, only $24 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $21,000 or $22,000 is useless if BTC trades above that level on expiry.

Bulls aim for $23,000 to secure a $155 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Feb. 17 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $21,000 and $22,000: 700 calls vs. 5,500 puts. The net result favors the put (bear) instruments by $100 million.
  • Between $22,000 and $22,500: 1,800 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
  • Between $22,500 and $23,000: 3,800 calls vs. 1,100 puts. The net result favors the call (bull) instruments by $60 million.
  • Between $23,000 and $24,000: 6,900 calls vs. 200 puts. The net result favors the call (bull) instruments by $155 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Related: Bitcoin price eyes $23K despite US dollar strength hitting 6-week high

Bears might benefit from the impact of regulation

Bitcoin bulls need to push the price above $23,000 on Feb. 17 to secure a potential $155 million profit. On the other hand, the bears’ best-case scenario requires a 3.5% dump below $22,000 to maximize their gains.

Considering the negative pressure from regulators, bears have good odds of flipping the table and avoiding a loss of $60 million or larger on Feb. 17.

More importantly, looking at a broader time frame, there is little room for the Fed to slow down the economy without spiraling the debt interest repayments out of control.

Feb. 17 will be an interesting display of strength between the short-term impact of a hostile crypto regulation environment versus Bitcoin’s long-term scarcity and censorship-resistance benefits.

Bitcoin (BTC) price gained 6.3% just two days after reaching $21,370 on Feb. 13, which was the lowest level seen in more than three weeks. The price recovery can be partially explained by the Feb. 14 U.S. Consumer price index data displaying a 6.4% increase in year-over-year inflation in January.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Stablecoins not the target in BUSD crackdown: Matrixport head of research

Crypto financial service Matrixport’s head of research believes regulators are not targeting all stablecoins with the regulatory crackdown on BUSD issuer Paxos.

Crypto financial services Matrixport’s head of research believes the recent scrutiny of Paxos and its Binance USD (BUSD) token is not a direct attack on stablecoins themselves. 

In a Feb. 14 analysis, Matrixport’s Markus Thielen suggested that BUSD issuer Paxos Trust Company may not have been stringent enough with its oversight of the token.

He added that the issue “does not appear to be around stablecoins” in itself.

“Paxos had violated its obligation to conduct tailored, periodic risk assessment and due diligence of Binance and Paxos-issued BUSD customers,” Thielen argued.

On Feb. 13, the New York Department of Financial Services (NYDFS) ordered Paxos to halt the issuance of BUSD “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.”

Paxos also recently confirmed that on Feb. 3, the United States Securities and Exchange Commission (SEC) sent a Wells notice to the stablecoin issuer over its alleged failure to register the offering under federal securities laws.

Thielen notes that BUSD has issued $11 billion on Ethereum, but there’s also $4.8 billion of Binance-Peg BUSD Token on BNB Smart Chain. Binance provides a pegged token service in which BUSD is locked on Ethereum and Binance-Peg BUSD is issued on BNB Chain and other blockchains such as Avalanche and Polygon.

“It appears that NYDFS is now worried that the $4.8 billion might not be properly backed or have had issues with being 1:1 backed,” he said.

However,Paxos has stated as recently as Feb. 13, that, “BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts.” 

In a statement to Cointelegraph, Binance reiterated this stance, saying, “BUSD is a 1 to 1 backed stablecoin that is one of the most transparent stablecoins in existence.”

Thielen notes some of the regulatory actions could have also been sparked by the Jan. 24 incident when Binance mixed customer funds with collateral.

The recent actions against BUSD have still caused some to believe that other stablecoins could be in trouble.

Paxos recently stated that besides the current issue around BUSD, “there are unequivocally no other allegations against Paxos.”

Meanwhile, USD Coin (USDC) issuer Circle’s chief strategy officer and head of global policy, Dante Disparte, told Cointelegraph:

“Circle maintains that USDC is a regulated dollar digital currency issued as stored value under U.S. money transmission law.”

“Facts and circumstances in any type of regulatory action like this are all different, as are the structural and regulatory considerations with each of the cryptocurrencies that are in circulation around the world,” Disparte added.

Related: Paxos ‘categorically disagrees’ with the SEC that BUSD is a security

Thielen has however urged the industry not to be overly concerned about the future of BUSD.

“Binance has shot itself a little bit in the foot here, but they are working on it and it should be resolved. So should we be really worried?” Thielen said.

“I don’t think so. Is the peg breaking? NO. We are no longer in a bear market where you worry about downside, in bull markets, you focus on the upside,” he added.

Binance withdrawals and BUSD redemptions surge post Paxos crackdown

Net outflows at the cryptocurrency exchange hit $788 million over the last 24 hours, however, Binance told Cointelegraph that “Funds are SAFU.”

Cryptocurrency exchange Binance has seen a surge of withdrawals over the last 24 hours as investors appear to be spooked over recent news of regulatory action against Paxos and its stablecoin Binance USD (BUSD).

At the same time, the BUSD token has recorded significant redemptions, with 342 million BUSD burned over the last 24 hours according to Peckshield.

On Feb. 12, news broke that the United States Securities and Exchange Commission gave notice of potential enforcement action against Paxos. It alleged the stablecoin is an unregistered security, an assertion that Paxos denies.

Data compiled from the blockchain intelligence platform Nansen show that Binance recorded 24-hour multichain token net outflows of $788.5 million, caused by outflows of $2.7 billion exceeding inflows of around $1.97 billion.

According to Dune analytics data, it’s the largest 24-hour net outflow since Dec. 17, when Binance’s ​​proof-of-reserve audits were removed from auditor Mazars’ website.

A spokesperson for Binance told Cointelegraph that “funds are SAFU” — backed by a Secure Asset Fund for Users — echoing what Binance chief Changpeng “CZ” Zhao said earlier on Feb. 13.

The spokesperson added that the exchange recently had a sell-off with “more than $1 billion” withdrawn in a 12-hour period, which it claims “was managed with ease.”

“We run a very simple business model — hold assets in custody and generate revenue from transaction fees,” Binance said, adding:

“We take our responsibility as a custodian seriously and maintain 1:1 backing for every user asset.”

Following the SEC’s action and a reported tip-off from USD Coin (USDC) issuer Circle, the New York Department of Financial Services (NYDFS) ordered Paxos to halt the issuance of BUSD on Feb. 13.

Related: Are stablecoins securities? Well, it’s not so simple, say lawyers

The outflows and token burns seemingly are a response to those events, with crypto users cashing out of the stablecoin over fears of further regulatory action.

Binance’s reserves harbor the largest amount of BUSD, holding $14.4 billion worth of the stablecoin, or around 90% of the $16.1 billion current market cap.

The crypto exchange also has around $60 billion worth of reserves, with 22% of that made up of BUSD.

Binance to support BUSD while exploring non-USD stablecoins, CZ says

Binance CEO Changpeng “CZ” Zhao says the exchange will continue to support BUSD despite issuer Paxos being ordered to stop minting the stablecoin by the U.S. SEC and New York regulators.

Cryptocurrency exchange Binance plans to continue supporting its Binance USD (BUSD) stablecoin despite its issuer, Paxos Trust Company, facing a stop order from American regulators.

As reported by Cointelegraph, the New York Department of Financial Services (NYDFS) has ordered blockchain firm Paxos to cease issuing dollar-pegged stablecoin BUSD. Paxos has also received a wells notice from the United States Securities and Exchange Commission (SEC) alleging that BUSD is an unregistered security.

Binance CEO Changpeng “CZ” Zhao has moved to assure users that funds are safe despite the intended enforcement action. In a Twitter thread on Feb. 13, Zhao noted Paxos is regulated by the NYDFS, and BUSD is “wholly owned and managed by Paxos.“

According to Zhao, Paxos will continue to service BUSD and manage redemptions. It also made assurances of its reserves, which have been audited by multiple parties. As a result of the enforcement action, the Binance CEO said that the BUSD market cap would decrease over time, and the exchange would explore non-U.S. dollar-based stablecoins.

Zhao also said that Binance would continue to support the stablecoin on its exchange while acknowledging that users may migrate to other stablecoin tokens due to the enforcement action. 

Related: ‘Agent of an anti-crypto agenda’ — Community slams Gensler over Kraken crackdown

This will also see Binance consider “product adjustments,” with a move away from using BUSD as its main trading pair for numerous tokens available across the exchange. Binance’s CEO also cautioned that the actions taken by the SEC and NYDFS could have a significant impact on the ongoing development of the cryptocurrency ecosystem:

““IF” BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.”

Zhao also noted that ongoing regulatory uncertainty in certain markets would necessitate reviews of other projects in given jurisdictions “to ensure our users are insulated from any undue harm.“

American regulators have had a number of cryptocurrency service providers and tokens in their crosshairs in recent years. Ripple is still in an ongoing legal battle with the SEC over claims that XRP (XRP) is an unregistered security. 

Meanwhile, the cryptocurrency exchange Kraken agreed to cease its staking services to U.S. clients in Feb. 2023, paying $30 million in disgorgement, prejudgment interest and civil penalties to the SEC. The regulator charged Kraken with failing to register its crypto asset staking-as-a-service program.

Breaking: Paxos reportedly ordered to stop issuing Binance USD

A New York regulator ordered Paxos to stop issuing BUSD, the third-largest stablecoin by market cap.

The New York Department of Financial Services (NYDFS) has ordered blockchain company Paxos Trust to stop the issuance of dollar-pegged Binance USD (BUSD) stablecoin. 

The New York regulator’s actions come shortly after the United States Securities and Exchange Commission (SEC) issued a wells notice to Paxos — a letter the regulator uses to tell companies of planned enforcement action. The notice alleged that Binance USD is an unregistered security.

The NYDFS has asked Paxos to stop creating more of its BUSD token. Paxos will continue to manage redemptions of the product, according to a Binance statement.

The Department is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols. In a statement published on the NYDFS website, the regulator confirmed:

“DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD. In response, on February 13, 2023, Paxos notified customers of its intent to end its relationship with Binance for BUSD.”

The most recent regulatory action on the third largest stablecoin comes in the wake of growing scrutiny around the crypto market. The SEC declared that crypto staking services violate securities law only last week, forcing Kraken to close its staking offering altogether. Coinbase is taking up the fight, claiming its staking products are not securities.

The securities debate in the crypto market is long-running and has been in focus ever since SEC filed a lawsuit against Ripple, the issuer behind the XRP (XRP) token. The case has yet to reach a conclusion. Generally, if an investment of money is made in a business with the expectation of a profit to come through the efforts of someone other than the investor, it is considered a security.

However, the security allegations against a stablecoin could present a major challenge to the crypto industry, as stablecoins are a popular on-ramp for users taking their first steps into crypto. Cointelegraph reached out to law experts to understand how stablecoins could qualify as a security. One lawyer said that while stablecoins are supposed to be stable, buyers may possibly profit from a range of arbitrage, hedging and staking opportunities.

Blockchain attorneys told Cointelegraph that while the answer isn’t clear-cut, there is a case to be made if the stablecoin was created with the expectation of making money or if it is a derivative of a security.

Updated at 3:15pm UTC to include a statement from the NYDFS.

Are stablecoins securities? Well, it’s not so simple, say lawyers

One lawyer said that while stablecoins are meant to be stable, buyers may possibly profit from a range of arbitrage, hedging and staking opportunities.

Recently reported planned enforcement action against the Paxos Trust Company by the United States Securities and Exchange Commission (SEC) over Binance USD (BUSD) has many in the community questioning how the regulator could see a stablecoin as a security.

Blockchain lawyers told Cointelegraph that while the answer isn’t black and white, there exists an argument for it if the stablecoin was issued in the expectation of profits or are derivatives of securities.

A report from The Wall Street Journal on Feb. 12 revealed that the SEC is planning to sue Paxos Trust Company in relation to its issuance of Binance USD, a stablecoin it created in partnership with Binance in 2019. Within the notice, the SEC reportedly alleges that BUSD is an unregistered security.

Aaron Lane, a senior lecturer at RMIT’s Blockchain Innovation Hub, told Cointelegraph that while the SEC may claim these stablecoins to be securities, that proposition hasn’t been conclusively tested by the U.S. Courts:

“With stablecoins, a particularly contentious issue will be whether the investment in the stablecoin led a person to an expectation of profit (the ‘third arm’ of the Howey test).”

“On a narrow view, the whole idea of the stablecoin is that it is stable. On a broader view, it could be argued that arbitrage, hedging and staking opportunities provide an expectation of profit,” he said.

Lane also explained that a stablecoin might fall under U.S. securities laws in the event that it is found to be a derivative of a security.

This is something that SEC Chair Gary Gensler emphasized strongly in a July 2021 speech to the American Bar Association Derivative and Futures Law Committee:

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities.”

“These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime,” he said at the time.

However, Lane stressed that ultimately each case “will turn on its own facts,” particularly when adjudicating on an algorithmic stablecoin rather tha a crypto or fiat-collateralized one.

A recent post by Quinn Emanuel Trial Lawyers has also approached the subject, explaining that to “ramp up” stablecoins to a “stable value,” they may sometimes be offered on discounted prior to sufficiently stabilizing.

“These sales may support an argument that initial purchasers, despite formal disclaimers by issuers and purchasers alike, buy with the intent for resale following stabilization at the higher price,” it wrote.

Are Stablecoins Securities? A legal analysis from Quinn Emanuel Trial Lawyers. Source. Quinn Emanuel.

But while stablecoin issuers may resort to the courts to decide the dispute, many believe the SEC’s “regulation by enforcement” approach is uncalled for.

Digital assets lawyer and partner Michael Bacina of Piper Alderman, told Cointelegraph that the SEC should instead provide “sensible guidance” to help the industry players who are seeking to be legally compliant:

“Regulation by enforcement is an inefficient way of meeting policy outcomes, as SEC Commissioner Peirce has recently observed in her blistering dissent in relation to the Kraken prosecution. When a rapidly growing industry doesn’t fit the existing regulatory framework and has been seeking clear pathways to compliance, then engagement and sensible guidance is a far superior approach than resorting to lawsuits.”

Cinneamhain Ventures partner Adam Cochran gave another view to his 181,000 Twitter followers on Feb. 13, noting that the SEC can sue any company that issues financial assets under the much broader Securities Act of 1933:

The digital asset investor then explained that the SEC isn’t restricted to the Howey Test:

“The fact that these assets hold underlying treasuries, makes them a lot like a money market fund, exposing holders to a security, even if they don’t earn from it. Making an argument (not one I agree with, but a reasonable enough one) that they can be a security.”

“Worth fighting tooth and nail, but everyone who is shrugging this off as “lol the SEC got it wrong, this doesn’t pass the Howey test” needs to re-eval. The SEC, believe it or not, has knowledgeable securities counsel,” he added.

Related: SEC chair compares stablecoins to casino poker chips

The latest reported planned action from the SEC comes after reports emerged on Feb. 10 that Paxos Trust was being investigated by the New York Department of Financial Services for an unconfirmed reason.

Commenting on the initial reports, a spokesperson for Binance said BUSD is a “Paxos issued and owned product,” with Binance licensing its brand to the firm for use with BUSD. It added Paxos is regulated by the New York Department of Financial Services (NYDFS) and that BUSD is a “1 to 1 backed stablecoin.“

“Stablecoins are a critical safety net for investors seeking refuge from volatile markets, and limiting their access would directly harm millions of people across the globe,” the spokesperson added. “We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”

Breaking: Paxos facing SEC lawsuit over Binance USD — Report

According to The Wall Street Journal, the notice relates to Binance USD, which the United States Securities and Exchange Commission is alleging is an unregistered security.

The United States Securities and Exchange Commission has reportedly told Paxos Trust Co. that it plans to sue the stablecoin issuer for violation of investor protection laws in relation to its Binance USD (BUSD) token.

According to a Feb. 12 report in The Wall Street Journal citing people familiar with the matter, the SEC has issued a Wells Notice to Paxos — a letter the regulator uses to tell companies of planned enforcement action.

The notice alleges that Binance USD is an unregistered security, according to the people.

According to Investopedia, after a Wells Notice is received, the accused is allowed 30 days to respond to it via a legal brief known as a Wells Submission, a chance to argue why the charges should not be brought against t prospective defendants.

An SEC spokesperson told Cointelegraph that it “does not comment on the existence or nonexistence of a possible investigation.”

A spokesperson for Binance said that BUSD is a “Paxos issued and owned product,“ with Binance licensing its brand to the firm for use with BUSD.

The spokesperson added that Paxos is regulated by the New York Department of Financial Services and that BUSD is a “1 to 1 backed stablecoin.”

“Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people across the globe,” the Binance representative said. “We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”

Cointelegraph contacted Paxos for comment but did not receive an immediate response.

Paxos is the owner and issuer of BUSD,  a U.S. Dollar-collateralized stablecoin that has been around since the firm struck a partnership with Binance in September 2019. It is the third-largest stablecoin, with a market cap currently exceeding $16 billion.

Paxos is also the creator of the Paxos Dollar (USDP) stablecoin, which was launched in 2018, and is also behind digital asset exchange itBit, which it launched in 2012 alongside the founding of Paxos.

FOX Business journalist Eleanor Terrett tweeted on Feb. 12 that the move was a “unilateral effort” from the SEC and other regulators to “blitz crypto.” She claimed that more Wells notices are expected to be sent over the coming weeks.

The reported action is the latest move by the SEC in its seeming crackdown on crypto-related firms.

Related: Coinbase will ‘happily defend’ staking in US courts, says CEO

On Feb. 9, the regulator announced a $30 million settlement with crypto exchange Kraken for its failure to register its crypto staking program which the SEC claimed was a security. Following the action SEC Chair Gary Gensler warned crypto firms to “come in and follow the law.”

The SEC faced criticism from its own people for its action against Kraken. On Feb. 10 SEC Commissioner Hester Peirce said the SEC’s conduct “is not an efficient or fair way of regulating,” slamming her own agency for shutting down a “program that has served people well.”

Reports also emerged last week that Paxos was being investigated by the NYDFS. However, the exact motive behind the probe is currently unclear.

This article was updated on Feb. 13 at 2:00am UTC to add a response from a Binance spokesperson and at 11:45 am UTC to add a response from a SEC spokesperson.