Stablecoin Holders in Trouble With This Current SEC stance on BUSD?
The once safe haven for investors is slowly drifting into a haze with this new regulatory stance on stablecoins by the U.S. Securities and Exchange Commision (SEC). The SEC sent out a "Wells notice" to the Binance USD (BUSD) stablecoin issuing company, Paxos, classifying their stablecoin as unregistered securities. Shortly after, the New York authorities halted the minting and issuance of BUSD in the U.S.
Are Stablecoins Slowly Becoming a Thing Of The Past?
The only respite from this turmolous market volatility is slowly slipping through our fingers with this new regulatory stance on the BUSD stablecoin. The SEC sent out a Wells notice to the Paxos stablecoin company, classifying their stablecoin as unregistered securities. The Wells notice is an informal letter drafted and sent to a company, warning of an impending legal action against them.
This Wells notice sparked an uproar in the crypto community, with many community members treating this case with an FUD (Fear, Uncertainty, and Doubt) mindset. Some however, cited this as an attack on the crypto community by these regulators as there has been disputes on the classification of crypto assets as either commodities or securities.
Following the legal regulations imposed by the SEC on Paxos, the company underwent its token burn, sending over 700 million worth of BUSD to a burn address amidst the regulatory pressure. The events of the SEC's notice on BUSD resonated in a massive inflow of the stablecoin into centralized exchanges; Investors were observed migrating to other safer stablecoins not yet under the scrutiny of the SEC.
The crypto community which was slowly recovering from the claws of the market crisis in 2022 is now falling victim to this SEC’s regulatory stance on BUSD and stablecoins in general. A media personnel also made a news report on the USDC stablecoin issuing firm, Circle, stating that it received a Wells notice as well, however, this has since been debunked as false.
CZ’s Response To The SEC Clampdown On Stablecoin BUSD
CEO of Binance, Changpeng Zhao (CZ) commented on this situation stating that Binance will continue to show its support for this stablecoin on its platform, assuring users of the safety of their BUSD assets. This was however not compelling enough to convince investors to hold this stablecoin as most rushed to switch to safer alternatives. The BUSD market capitalization realized a drop of 4% following the burn and the dump of this cryptocurrency by investors.
When asked about the future of stablecoins, CZ stated that the community might need to look into other alternatives of backing apart from the U.S. dollar; Stating that this U.S. dollar backing does not seem to fare well for the crypto community and the community should explore other fiat currencies like euro, yen etc.
With regards to algorithmic backed stablecoins, he expressed his worries about the associated risks involved in algorithmic stablecoins and stated the prevalence and benefit of fiat backed currencies over algorithmic backed stablecoins. He however stated that if both should be implemented, the benefits and risks of backing should be outlined to investors to enable them choose which favors them.
The crypto market is still unsettled following these regulations as the unexpected could happen anytime soon with this clampdown on stablecoins by the SEC.
Aave protocol on Ethereum also discontinued the trading of BUSD on its platform. BUSD was the only traded stablecoin on Aave platform till this notice; the team stated they would look into other alternatives due to this regulatory pressure on the Binance USD stablecoin.
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