BUSD Security Classification Could Deal a Major Blow to Crypto Industry, Binance CEO Cautions

The CEO of Binance, Changpeng Zhao (CZ), has cautioned that there could be “profound impacts” on the cryptocurrency industry if Binance USD (BUSD), a stablecoin issued by Paxos, is ruled to be a security by the US Securities and Exchange Commission (SEC). The warning follows reports of a lawsuit by the SEC against Paxos, the issuer of BUSD, over its alleged failure to register the token as a security.

Binance CEO weighs in on SEC's legal action against Paxos and BUSD

CZ explained on Twitter that while BUSD is called Binance USD, it is not issued or redeemed by Binance, but instead wholly owned and managed by Paxos. Furthermore, he noted that when Paxos ceases to mint new BUSD tokens, the stablecoins market cap will only decrease over time.

BUSD currently has a market cap of nearly $16bn, making it the worlds seventh-largest cryptocurrency and the third-largest stablecoin. Despite the potential impact of the lawsuit, Binance will continue to support BUSD for the foreseeable future.

Paxos Under Fire for Alleged CZ-Related SEC Lawsuit

CZ also addressed the alleged SEC lawsuit against Paxos, stating that “he personally agreed with the assessment of crypto analyst Miles Deutscher that it was ”scary precedent“ that the SEC had labeled BUSD an ”unregistered security“ and sued Paxos”. Deutscher questioned how a stablecoin could be considered a security when it clearly did not meet the criteria of the Howey Test. However, Deutscher also acknowledged that “the SEC had the power to define an investable asset as a security if it chose to do so”.

CZ warned that if BUSD is ruled security by the courts, “it could have profound impacts on the development of the cryptocurrency industry in the jurisdictions where it is ruled as such”. He also said that “Binance would make product adjustments if users migrated to other stablecoins over time, such as moving away from using BUSD as the main pair for trading”.The caution from CZ follows recent action by the SEC against cryptocurrency exchange Kraken over its staking program. Kraken agreed to wind down the service for US clients and pay $30m in disgorgement, prejudgment interest, and civil penalties. Kraken CEO Jesse Powell subsequently urged Congress to pass a law to protect the US cryptocurrency market and consumers, who he said would otherwise be forced to seek services overseas.

The regulatory uncertainty around cryptocurrencies has been a growing concern for the industry, with various countries and jurisdictions adopting different approaches. Some, such as El Salvador, have embraced cryptocurrencies as a means of facilitating financial inclusion and promoting economic growth. However, others have taken a more cautious approach, with some banning cryptocurrencies altogether.

In the US, the SEC has been ramping up its scrutiny of the cryptocurrency industry in recent months, taking action against various firms for allegedly violating securities laws. In addition to Paxos and Kraken, the regulator has also targeted Ripple Labs, alleging that the companys XRP token is a security that was sold without registration.

The regulatory environment is likely to remain challenging for the cryptocurrency industry, with ongoing concerns about investor protection, market stability, and money laundering. While some within the industry have called for clearer regulations to provide greater certainty, others have argued that overly burdensome regulations could stifle innovation and limit the potential of cryptocurrencies to transform the financial system.

In conclusion, the caution from Binance CEO CZ underscores the challenges facing the cryptocurrency industry as it grapples with regulatory uncertainty. While the impact of the alleged SEC lawsuit against Paxos remains to be seen, the possibility that BUSD could be ruled security highlights the ongoing tensions between the industry and regulators. With the regulatory environment likely to remain challenging, the cryptocurrency industry will need to navigate a complex landscape to realize its potential.

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