The New York Department of Financial Services (NYDFS) has reportedly ordered blockchain firm Paxos Trust to stop issuing the dollar-pegged stablecoin Binance USD (BUSD).
The New York regulator’s action comes shortly after the United States Securities and Exchange Commission (SEC) issued a well notice to Paxos – a letter regulators use to notify companies of planned enforcement actions. The notice states that Binance USD is an unregistered security.
NYDFS has reportedly asked Paxos to stop creating more BUSD tokens. Paxos will continue to manage the redemption of these products, according to Binance’s statement.
The latest regulatory action on the third largest stablecoin comes as a result of scrutiny in the crypto market. The SEC announced that its crypto staking service violated securities laws just last week, forcing Kraken to shut down its entire staking offering. Coinbase took up the fight, claiming its staking products are not securities.
The securities debate in the crypto market has been going on for a long time and has been in focus ever since the SEC filed a lawsuit against Ripple, the issuer behind the XRP token. The three-year-old case has been closely monitored but has not yet been resolved. In general, if the investment of money is made in a business with the expectation of profit coming through the efforts of someone other than the investor, it is considered a security.
Security allegations against stablecoins, however, could prove to be another nail in the coffin for crypto. Cointelegraph reached out to legal experts to find out how stablecoins that are known to be stable and often used as onboarding tools in crypto can qualify as securities. One advocate said that while stablecoins are stable, buyers may profit from a variety of arbitrage, hedging, and staking opportunities.
Blockchain lawyers told Cointelegraph that the answer is unclear, there is a case to be made if a stablecoin is created with the hope of making money or if it is a security derivative.
This is a developing story, and further information will be added as it becomes available.