As cryptocurrency firm Paxos was forced to stop issuing the dollar-pegged Binance token BUSD and is facing a lawsuit by the United States Securities and Exchange Commission (SEC) over the issuance of the stablecoin it considers a security, Binance’s chief has explained the implications of courts siding with the SEC.
According to the CEO of the crypto exchange, Changpeng Zhao (CZ), if the courts rule BUSD as a security, significant effects can be expected on the future development of the crypto industry, particularly in the areas where such a decision would pertain, as he explained on February 13.
The Howey Test criteria
Furthermore, in the Twitter thread where he addresses the issue, CZ said that he agreed with crypto analyst Miles Deutscher, who drew attention to the fact that BUSD didn’t meet the Howey Test criteria for it to be deemed a security in the first place.
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The same view was expressed by Ram Ahluwalia, the CEO of alternative asset investment manager Lumida Wealth, who reminded that the SEC had issued a No Action Letter to the blockchain gaming token Pocketful of Quarters in 2019.
In the document, the regulator declared there was no ‘expectation of profit’ for the decentralized governance Q2 token, which had a fixed value (like a stablecoin), leading him to wonder:
“How can the SEC treat the Paxos-issued token as a security and remain consistent?”
BUSD funds are ‘SAFU’
At the same time, the Binance CEO stated that all funds were ‘SAFU,’ and that Paxos had been ordered “to cease minting new BUSD by the New York Department of Financial Services (NYDFS),” which would result in BUSD market cap decreasing over time.
As he explained:
“Paxos also assured us the funds are SAFU, and fully covered by reserves in their banks, with their reserves audited many times by various audit firms already.”
Meanwhile, Paxos and BUSD are the latest victims of the wide-reaching crypto crackdown unleashed by the U.S. government in recent days, as crypto trading platform Kraken was earlier ordered to shutter its staking services in the country and the SEC chair Gary Gensler announced using “all means available” to “protect the investing public” from the crypto risks.
Featured image via Binance.com
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