The U.S. Securities and Exchange Commission (SEC) has decided not to pursue enforcement action against Paxos over its BUSD stablecoin, concluding a year-long investigation. This decision allows Paxos to move forward with new partnerships and business plans without the looming regulatory uncertainty.
The ruling follows a recent partial defeat for the SEC in a lawsuit against Binance. The decision is significant given that Congress has yet to advance legislation to regulate the crypto industry, marking a notable win for stablecoins.
Walter Hessert, the head of strategy at Paxos, expressed relief, saying, “It’s what we expected all along, and it really should create, hopefully, more certainty in the market among what we see as a growing number of large enterprises.”
Paxos launched BUSD in partnership with Binance in 2019. Although BUSD never surpassed USDT and USDC in market share, it remains a significant player due to its integration with the Binance ecosystem.
The SEC had a different view on BUSD. In a lawsuit against Binance, the agency argued that BUSD was an investment contract and thus a security because it generated profits through its reserves for both Binance and Paxos, which were then passed on to Binance users as yields.
Last year, the SEC issued a Wells notice to Paxos, indicating potential enforcement action. Paxos disputed the SEC’s view, maintaining that BUSD was backed 1:1 with dollar reserves. However, they did not provide details on the profits generated by the reserves.
The SEC’s action against Paxos had a significant impact on the industry, as stablecoins typically reside in a regulatory gray area. Many argue that stablecoins do not meet the expectation of profit, a key criterion for securities.
The SEC confirmed that the investigation was “active and ongoing” as of July 3. However, the agency’s stance shifted after a federal judge ruled on June 28 that the sales of BUSD did not constitute a securities offering. Hessert noted that the Wells notice had hampered Paxos’ ability to partner with new companies, including PayPal.
“It definitely will accelerate some really exciting enterprise conversations,” he said.