Paxos was ordered by a New York regulator to cease producing BUSD, the third-largest stablecoin by market capitalization.
The New York Department of Financial Services (NYDFS) has ordered Paxos Trust to cease issuing the dollar-backed Binance USD stablecoin.
The New York regulator’s moves came just after the United States Securities and Exchange Commission (SEC) issued a wells notice to Paxos. A Wells notice is a document used by regulators to inform corporations of impending enforcement action.
The NYDFS has requested Paxos to cease producing more BUSD tokens. Paxos will continue to administer the product’s redemptions, according to a statement from Binance.
The Department is carefully watching Paxos to ensure that the firm can conduct redemptions in an orderly manner while following heightened, risk-based compliance measures.
The most recent regulatory move against the third-largest stablecoin follows a rise in market scrutiny. Just a week, the SEC decided that crypto staking services violate securities law, compelling Kraken to discontinue its staking business entirely. Coinbase is fighting back, asserting that its staking products are not securities.
Since the SEC initiated a lawsuit against Ripple, the creator of the XRP coin, the securities discussed in the cryptocurrency market have been front and centre. The case has not yet been resolved. When money is invested in a firm with the assumption that a return would be generated via the efforts of someone other than the investor, the investment has termed security.
However, the security charges against a stablecoin might pose a significant threat to the cryptocurrency sector, since stablecoins are a popular entry point for new users. Cointelegraph contacted legal professionals to see how stablecoins may qualify as securities. While stablecoins are intended to remain stable, purchasers may benefit from arbitrage, hedging, and staking possibilities, according to one attorney.
There is a case to be made whether the stablecoin was formed with the intention of profiting or if it is a derivative of security, according to blockchain lawyers who told Cointelegraph that the answer is not obvious.
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