SEC closes investigation into stablecoin issuer Paxos

The US Securities and Exchange Commission (SEC) appears to be backing away from its approach against stablecoins.

On July 11, Paxos announced that it had received a “termination notice” from the SEC regarding the regulator’s July 9 investigation into BUSD, the Binance-linked stablecoin issued by Paxos.

The announcement stated that the SEC would not recommend any enforcement action against Paxos, suggesting that the SEC had concluded that BUSD is not a security.

Despite being tied to the US dollar, the SEC had argued that the stablecoin functions as an investment contract and therefore as a security.

“Paxos Trust Company has consistently stressed that its USD-backed stablecoins are not securities under the federal securities laws and that the Wells Notice was unjustified and unwarranted,” Paxos said. “We believe this development will spark a new wave of stablecoin adoption by leading global companies.”

This move comes nearly 18 months after the SEC issued a Wells Notice to Paxos in February 2023. A Wells Notice is a letter from the SEC informing a company that it has completed an investigation and plans to take enforcement action against the company.

The announcement coincided with the New York Department of Financial Services ordering Paxos to stop issuing BUSD. BUSD’s market capitalization has since fallen by more than 95.5%, from $15.9 billion to just $69.5 million, according to CoinGecko.

Negative verdict

Notably, the SEC’s termination notice came about two weeks after a U.S. federal judge ruled that Binance’s BUSD sales did not constitute a securities offering.

On June 28, Judge Amy Berman Jackson dismissed several counts in the SEC’s lawsuit against Binance, including alleged securities law violations resulting from secondary trades involving BUSD and BNB Coin (BNB). Judge Jackson said the counts “do not meet the criteria of the Howey Test” – a set of criteria used to determine whether an asset constitutes a securities investment contract.

The ruling likely forced the SEC to drop its investigation into Paxos and BUSD.

The dismissal is a major victory for stablecoin issuers. Many of the sector’s leading issuers are based in the United States, including Circle, Paxos, PayPal and VanEck.

According to DeFiLlama, the combined market capitalization of all stablecoins is currently $162.4 billion, having grown 25% since the beginning of the year.

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