Binance CEO Changpeng Zhao (CZ) has warned that if Paxos Trust Company-issued stablecoin Binance Dollar (BUSD) is classified as a security, it could have a significant impact on the crypto industry. It was previously reported that the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Paxos, resulting in the company terminating its BUSD relationship with Binance.
On Monday, CZ clarified the situation following the Paxos announcement on Twitter. The company said it was instructed by the New York Department of Financial Services (NYDFS) to stop minting new BUSD tokens. CZ emphasized that Binance does not participate in the issuance or redemption of BUSD and is wholly owned and managed by Paxos.
CZ noted that when Paxos stops issuing new BUSD tokens, the stablecoin’s market cap will decline over time. Currently, BUSD has a market cap of nearly $16 billion, making it the seventh largest cryptocurrency and the third largest stablecoin in the world.
Paxos will continue to manage redemptions and has assured Binance that the funds are safe and fully covered by its bank’s reserves, which have been audited multiple times by various auditing firms.
CZ also weighed in on the so-called SEC lawsuit against Paxos, saying he is not an expert on U.S. law and has no information about the case other than public news articles. However, he agreed with cryptocurrency analyst Miles Deutscher’s assessment that the SEC’s decision to label BUSD as an “unregistered security” is worrisome and sets a worrying precedent.
Deutscher said BUSD should not be classified as a security because it does not meet the Howey test. He also acknowledged that the SEC does not need to follow the Howey test to classify investable assets as securities, raising concerns.
CZ warned that if BUSD were to be ruled a security by the courts, it could have a significant impact on how the crypto industry develops in the jurisdictions where it is classified as such. However, he also said that Binance will continue to support BUSD for the foreseeable future, but expects users to migrate to other stablecoins over time. The company plans to make product adjustments accordingly.
Given the ongoing regulatory uncertainty in certain markets, Binance will review other projects in these jurisdictions to ensure that its users are protected from any undue harm. Last week, the SEC took action over Kraken’s staking scheme, resulting in the company ceasing to serve U.S. customers and paying $30 million in disgorgement, advance interest and civil penalties. Kraken CEO Jesse Powell called on Congress to pass a law to protect the U.S. crypto market and U.S. consumers who will now be forced to obtain services overseas.