SEC Backs Down: No Enforcement Action Against Stablecoin Issuer Paxos

The U.S. Securities and Exchange Commission (SEC) has reversed course on its investigation into Paxos, the issuer of the popular Binance USD (BUSD) stablecoin. This marks a significant development in the ongoing saga surrounding cryptocurrency regulation and the classification of digital assets.

A July 9th letter from Jorge Tenreiro, acting chief of the SEC’s crypto assets and cyber unit, confirmed their decision to drop the investigation and not pursue an enforcement action against Paxos. This comes after the SEC issued a Wells Notice in February 2023, alleging that BUSD was an unregistered security and that Paxos violated federal securities laws.

Paxos consistently maintained that BUSD, a stablecoin pegged to the US dollar, did not qualify as a security under existing regulations. The company expressed satisfaction with the SEC’s decision, highlighting their commitment to advocating for stable-value digital assets.

The SEC’s retreat likely stems, in part, from recent court rulings that have gone against the regulator in its pursuit of classifying certain tokens as securities. Notably, a July 2023 federal court decision in SEC v. Ripple established that XRP, another digital asset, was not a security based on its programmatic sales on exchanges.

Furthermore, in June 2024, a judge overseeing the SEC’s case against Binance cited the Ripple ruling in dismissing a claim related to BUSD. These rulings likely influenced the SEC’s decision to abandon its pursuit against Paxos.

Uncertain Future for Crypto Regulations

While this development is a win for Paxos and the stablecoin industry, the broader regulatory landscape for cryptocurrencies in the US remains unsettled. The SEC still has ongoing enforcement actions against several prominent crypto firms, including Ripple, Binance, Kraken, and Coinbase. However, a recent Supreme Court ruling could complicate these cases. The ruling eliminates the requirement for courts to automatically defer to federal agencies’ interpretations of regulations. This could force the SEC to re-evaluate its legal arguments in its ongoing lawsuits against crypto firms.