• Binance USD (BUSD) redemptions have surged to $360 million as investors panic in response to the threat of legal action from the U.S. Securities and Exchange Commission (SEC).
• Paxos, the issuer of BUSD, will no longer mint the dollar-pegged asset from Feb. 21 due to SEC accusations that it is selling unregistered securities.
• Analysts believe that this is a clandestine attack on Binance, even though Paxos is fully regulated and compliant.
The Threat of Legal Action
The latest blow to the crypto industry was dealt by U.S. regulators who issued a threat of legal action against Paxos, the issuer of the third-largest stablecoin – Binance USD (BUSD). The SEC accused Paxos of selling unregistered securities, even though BUSD is a stablecoin. In response, Paxos announced that it would no longer mint the dollar-pegged asset from Feb 21 onwards.
Panic Sets In
This news has caused panic amongst investors and led to an exodus from BUSD with redemptions surging over the past few hours. Industry analysts have labelled this move as a clandestine attack on Binance by choosing any stablecoin to target but going with one that was fully regulated and compliant instead – thus taking the path of most resistance. As a result, supply has declined by 2.2% in just a few hours since before the announcement when there was $16.15 billion BUSD circulating.
Paxos’ Reserves Fully Backed
Despite these events, Paxos has maintained that its BUSD reserves are still 1:1 backed by dollars and reassured customers that their funds are safe and secure despite this suspension in minting new tokens until further notice or direction from relevant authorities or regulators in New York State or elsewhere in connection with its virtual currency activities.
Binance has yet to comment publicly on this situation but they released an article shortly after outlining their stance on digital assets being considered securities under applicable laws which aims to provide clarity for users who may be uncertain about whether certain digital assets should be treated as security tokens or not within different jurisdictions around the world.
It remains unclear how this episode will end but what is certain is that it serves as another reminder for investors to remain vigilant when investing in digital assets due to their lack of regulatory oversight compared traditional financial products such as stocks and bonds which have more established protection for consumers’ investments through government agencies like SEC or FINRA..