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On Monday, Paxos confirmed that the Securities and Exchange Commission (SEC) had sent it a Wells Notice.
The company said that it is prepared to deal with any enforcement action that the agency may take in relation to the stablecoin Binance USD (BUSD).
The SEC sends a Wells Notice to inform the recipients that it is planning on carrying out a potential enforcement action.
The SEC notice
The SEC sent a notice to Paxos to inform the company that it is contemplating enforcement action for its failure to register the Binance USD stablecoin as a security.
The company said that it disagreed with the SEC’s stance of BUSD being classified as a security and added that it was prepared to fight a lawsuit vigorously if it comes down to it.
Paxos stated that the BUSD stablecoin is not a security despite what the SEC may claim and it also said that this was the only allegation that the securities regulator had made.
This statement comes after another announcement from Paxos in which it stated that it would no longer mint the BUSD stablecoin.
Pegged to the US dollar, it is the third-largest stablecoin in the market and Paxos had signed a licensing agreement with Binance, the biggest crypto exchange in the market, to issue the token in question.
The partnership
On Monday, Paxos announced that it was ending its partnership with Binance. It also reassured its clientele that while it was ending the licensing agreement, customers would still have a year to redeem their stablecoins.
Paxos and Binance launched the partnership in 2019 for launching the BUSD stablecoin. Data from CoinGecko shows that the stablecoin is currently the seventh largest crypto in terms of its market cap.
Its total valuation stands at around $15.8 billion. At the time of the announcement about shuttering the BUSD stablecoin project, Paxos had not made any mention of the SEC.
It only said that it would be working with the New York Department of Financial Services (NYDFS), with which it is registered and regulated, for winding down the project.
The process
The process of issuing the BUSD on the Ethereum network by Paxos has been overseen by the NYDFS and regular examination shows that the stablecoin has fully backed reserves in US dollars.
However, the stablecoin is also offered on the Binance Smart Chain as a token and the process used for it has some flaws, something that Binance has admitted.
The crypto exchange can only issue the BUSD stablecoin on the Binance Smart Chain when it has a collateral of an equal amount of BUSD issued by Paxos.
Plus, it has to use its own network to release the Binance-Peg BUSD. However, data has shown that there have been several times that the balance has slipped.
There were three instances between 2020 and 2021 when the difference between the two surpassed $1 billion, with the BUSD on the Binance Smart Chain higher than the collateral it had.
A Binance spokesperson had said that the differences were ‘delays’ that the exchange had faced in putting together the capital.
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