SEC Drops Stablecoin Probe, Marking a Win for Paxos and the Crypto Industry

In a notable decision, the Securities and Exchange Commission (SEC) has ended its investigation into Paxos' BUSD stablecoin, according to Fortune. This move is seen as a significant win for the crypto industry, which has long sought regulatory clarity.

The SEC's Decision

On July 9, Jorge Tenreiro, the acting chief of the SEC's crypto assets and cyber unit, informed Paxos that he did not intend to recommend an enforcement action. This notice came more than a year after the SEC had issued a Wells notice to Paxos, signaling an impending enforcement action over the BUSD stablecoin, which Paxos issued in partnership with Binance.

The SEC's retreat follows a partial defeat in a lawsuit against Binance, where a federal judge ruled that the sales of BUSD did not constitute a securities offering. The judge's decision appears to have influenced the SEC's stance on the matter.

Impact on the Crypto Industry

This decision by the SEC is a relief for Paxos and the broader stablecoin sector, which includes major players like PayPal and VanEck. Walter Hessert, head of strategy at Paxos, expressed optimism, stating that the termination of the investigation should create more certainty in the market and foster new enterprise partnerships.

The SEC's move is particularly timely as Congress continues to delay legislation to regulate the growing asset class. Stablecoins have been in a regulatory gray zone, but many in the industry argue that the absence of an expectation of profit—a key factor in determining securities—sets them apart from other crypto assets.

Background on BUSD and Regulatory Challenges

Paxos first launched BUSD in partnership with Binance in September 2019. While it never overtook competitors like Tether and USDC, it became a significant player in the stablecoin market due to its integration with the Binance ecosystem.

The SEC had argued that BUSD was an investment contract and thus a security because it generated profits through its reserves. Paxos, however, maintained that BUSD was backed 1:1 with dollar-denominated reserves and disagreed with the SEC's stance.

The investigation had placed a cloud over Paxos, impacting its ability to form new partnerships, including potential collaborations with companies like PayPal. Hessert noted that the end of the investigation would likely accelerate enterprise conversations.

Looking Ahead

The SEC's decision could bolster the stablecoin sector in the U.S., which has seen firms looking abroad to launch new offerings amid regulatory uncertainty. As the crypto industry continues to evolve, the resolution of this investigation may serve as a precedent for how similar cases are handled in the future.