The U.S. Securities and Exchange Commission (SEC) has informed New York-based crypto firm Paxos Trust Co. that it plans to sue the company for violating investor protection laws. The notice alleges that Binance stablecoin BUSD issued by Paxos would be an unregistered security. Paxos should have registered the offering of BUSD under the federal securities laws, the notice said. The New York Department of Financial Services (NY DFS) ordered Paxos to stop minting BUSD.
In a consumer alert published on its website, the NY DFS said there were “several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.” DFS authorized Paxos to issue BUSD on the Ethereum blockchain. However, DFS has not authorized Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos.
Paxos has issued the following statement regarding the DFS alert:
Paxos, the leading regulated blockchain and tokenization infrastructure platform, announced it will end its relationship with Binance for the branded stablecoin BUSD. Effective February 21, Paxos will cease issuance of new BUSD tokens … All 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
Paxos statement
Binance CEO Changpeng Zhao clarified via Twitter that BUSD would be issued exclusively by Paxos, which wholly owns and manages the stablecoin.
In a blog post, Binance explains that BUSD is natively issued on Ethereum. The Binance-pegged BUSD would be a wrapped version of the stablecoin, designed to track the value of the original, ERC-20 BUSD at a 1:1. Thiswrapped BUSD versions would run on six blockchains.
Each Binance-Peg BUSD token that Binance mints correspond to a Paxos-Peg BUSD token held in reserve by its issuer Paxos. BUSD holders can swap their tokens between the blockchains freely.
