Stablecoins Come Under The SEC's Crosshairs, But Paxos Still Has A Few Options Left Up Its Sleeve
- The SEC’s squabble with Paxos has kept the stablecoin industry under tension, with industry stakeholders scanning the horizon.
- Paxos could opt to settle or face the SEC in court, offering multiple outcomes for the industry.
- At the moment, the Wells notice only orders Paxos to halt the minting of BUSD, leading to a 17% reduction of the stablecoin’s dominance.
Following the SEC’s notice to Paxos to stop minting Binance USD (BUSD), only a handful of options remain for the issuing entity, each potentially changing the entire stablecoin ecosystem.
On Feb 13, the U.S. Securities and Exchange Commission (SEC) announced that it was opening an investigation into the issuance of BUSD on allegations that it violated existing securities regulations. Although the SEC is yet to proceed with legal action against BUSD issuer Paxos, the firm is expected to give reasons to the Commission on why it should not be dragged to court.
Right out the bat, Paxos has the option of settling with the SEC, which will most likely lead to the payment of a fine and a registration with the Commission. The decision to settle with the SEC may force the hand of other issuers to seek registration as issuing securities.
Widely considered the easy way out, Paxos still can face the SEC in court to disprove the claims that it offers unregistered securities to the public. This option appears to have gained significant ground amongst industry stakeholders as they continue to slam the SEC’s reasoning.
“It’s possible that Paxos aggressively litigates against the SEC, but the cost of doing so would be significant,” said Renato Mariotti, partner at law firm BCLP. “The mere fact that Paxos was fighting against the SEC would create risk and potentially make BUSD less attractive to the marketplace.”
A keen example of Marioti’s reasoning can be gleaned from the long-running legal battle between the SEC and Ripple Labs over the issuance of XRP. Since the start of the case, XRP’s value has tanked by over 70%, showing little signs of a resurgence as the battle inches toward its third year.
Regulating the assets backing stablecoins
Depending on Paxos’ response to the Wells notice, the SEC may abandon its threat of legal action to regulate the assets backing stablecoins. This option may seem an unlikely route for the commission, but experts claim that judicial precedent might give validity to the option.
“Absent a successful fight, it is most likely BUSD will no longer be sold into the U.S. or be available on U.S.-based digital asset exchanges,” said Townsend Lansing, Head of Product at CoinShares. “It is very possible that other stablecoins will have to follow suit.”
Before the SEC proceeds with legal action against Paxos, each of the securities watchdog’s five commissioners must vote to proceed with enforcement action.
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