Paxos asserts that Binance USD is not a security under two separate tests News ▸ US ▸ Regulation
Paxos asserts that Binance USD is not a security under two separate tests
The stablecoin issuer says that it is working constructively with the SEC.
2 min read
Updated: Feb. 22, 2023 at 12:40 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Paxos published a letter from its CEO, Charles Cascarilla, on Feb. 21 in which the executive discussed the company’s ill-fated BUSD stablecoin.
On Feb. 13, action from New York regulators led Paxos to stop issuing its Binance USD (BUSD) stablecoin. Though Paxos did so, the U.S. Securities and Exchange Commission separately issued a Wells Notice prospectively alleging that BUSD is a security.
The company has contested the latter assertion. Cascarilla wrote today:
“Under [the Howey and Reves tests], BUSD does not meet the criteria to be a security. Our stablecoins are always backed by cash and equivalents–dollars and US Treasury bills, but never securities.”
While the Howey Test defines many investment contracts as a security, the Reves test uses a “family resemblance” test to determine whether an asset is a security. As such, Paxos aims to disprove that BUSD is a security in a very broad sense.
Cascarilla said that Paxos is involved in “constructive discussions” with the U.S. Securities and Exchange Commission (SEC) on the matter and that these discussions occur privately. He said that the firm will share more information when it is possible to do.
He also said that Paxos may “defend [its] position in litigation,” echoing earlier statements in which the company said it will “vigorously litigate if necessary.” If Paxos follows through and defends itself in court, it will become one of just a few other high-profile crypto projects — including Ripple, LBRY, Telegram, and Kin — to challenge the SEC.
Cascarilla added that Paxos has facilitated more than $2.8 billion in Binance USD redemptions without disruption in the cryptocurrency market. Those redemptions continue from the $300 million of redemptions reported by Crypto Slate on Feb. 14.
Cascarilla additionally noted that Paxos is engaging with regulators on other matters. The company is pursuing an application with the Office of the Comptroller of the Currency (OCC) through which it aims to obtain a bank charter as well as an application with the SEC through which it intends to act as a clearing agency.
Today’s letter from Paxos is a public version of a letter that the firm sent to internal employees on Saturday. Various news publications quoted the letter in part today.
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Mike Dalton
Before transitioning to crypto writing in 2018, Mike studied library and information sciences. Currently, he resides on Canada's West Coast.
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BUSD is a stablecoin issued by Paxos in partnership with Binance..
Paxos
Paxos Trust Company, LLC is a regulated blockchain infrastructure company building transparent and transformative financial solutions.