SEC Drops Investigation into Stablecoin Issuer Paxos

The move comes just two weeks after a U.S. federal judge ruled that BUSD does not comprise a security.

The U.S. Securities and Exchange Commission (SEC) appears to be pulling back on its stablecoin crackdown.

On July 11, Paxos announced it received a “termination notice” from the SEC regarding the regulator’s investigation into BUSD, the Binance-affiliated stablecoin issued by Paxos, on July 9.

The notice said that the SEC will not recommend enforcement action against Paxos, suggesting the SEC determined that BUSD does not comprise a security asset.

Despite being pegged to the U.S. dollar, the SEC had argued that the stablecoin acted as an investment contract, and thus a security.

“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified,” Paxos said. “We believe this development will unlock a new wave of stablecoin adoption by leading global enterprises.”

The move comes nearly 18 months after the SEC issued a Wells Notice to Paxos in February 2023. A Wells Notice is a letter sent by the SEC to notify an entity it has completed an investigation and plans to bring enforcement action against them.

The notice coincided with the New York Department of Financial Services ordering Paxos to cease issuing BUSD. The market cap of BUSD has since tumbled more than 95.5% to just $69.5 million from $15.9 billion, according to CoinGecko.

Adverse ruling

Notably, the SEC’s termination notice was issued roughly two weeks after a U.S. federal judge ruled that Binance’s BUSD sales did not constitute a securities offering.

On June 28. Judge Amy Berman Jackson dismissed several charges in the SEC’s complaint against Binance, including alleged securities law violations resulting from secondary BUSD and BNB Coin (BNB) trades. Judge Jackson said that the charges “do not align with the prongs of the Howey test” — a set of criteria used to determine whether an asset comprises a securities investment contract.

The ruling likely placed pressure on the SEC to drop its investigation into Paxos and BUSD.

The dismissal is a major win for stablecoin distributors. Many of the sector’s leading issuers reside in the United States, including Circle, Paxos, PayPal, and VanEck.

The combined market cap of stablecoins currently sits at $162.4 billion after growing 25% since the start of the year, according to DeFiLlama.