• The U.S. Securities and Exchange Commission (SEC) has threatened legal action against the issuer of the Binance stablecoin, Paxos.
• In response, Paxos announced that it will no longer mint BUSD from February 21st.
• This announcement caused a run on the third-largest stablecoin, with redemptions of BUSD increasing dramatically over the past few hours.
SEC Threatens Legal Action Against Paxos
The U.S. Securities and Exchange Commission (SEC) has recently accused the New York Department of Financial Services (NYDFS) regulated company of selling unregistered securities, even though BUSD is a stablecoin. In response to this accusation, Paxos announced that it will no longer mint the dollar-pegged asset from Feb 21st.
Run on BUSD
This news caused panic and led to an increase in redemptions of BUSD over the past few hours. Although Paxos stated that its BUSD reserves are fully backed 1:1 to the dollar, investors have still chosen to withdraw their funds leading to a 2.2% decline in supply in just a few hours – falling from $16.15 billion circulating before the announcement to $13 billion now.
Attack On Binance?
The SEC’s decision to target BUSD has sparked speculation amongst industry analysts who view this as a “clandestine attack” on cryptocurrency exchange platform, Binance – which uses its own stablecoin -Binance USD (BUSD).
Due to market uncertainty caused by this news, investors have chosen to withdraw their funds from exchanges and other services offering BUSD causing an increase in redemption requests for USDC, Tether and PAXG tokens which have all seen substantial increases since yesterday’s announcement .
It remains unclear how this news will affect both Paxos and crypto markets going forward but one thing is certain; investors are spooked by recent regulatory developments and are increasingly opting for more secure assets such as gold or cash instead of digital assets like cryptocurrencies or stablecoins