American crypto giant Coinbase has announced it will suspend trading for Binance USD (BUSD) from March 13.
The stablecoin is issued by digital asset company Paxos and is associated with Binance, a major Coinbase competitor.
BUSD funds will remain accessible and customers will be able to withdraw their funds at any time.
The sudden suspension comes after the New York State Department of Financial Services (NYSDFS) ordered Paxos to halt the issuance of the controversial Binance-associated stablecoin.
According to Paxos, the SEC has sent them a notice stating that the formidable regulator is considering recommending an action claiming that BUSD is a security. As a result, Paxos would need to register the issuance of the contentious stablecoin under federal securities laws.
Other stablecoin issuers may have to follow Paxos and register or prepare for a legal battle with the SEC. The regulator will use the Howey test to determine whether BUSD is an investment contract, which could lead to more stringent regulation.
Paxos has argued that BUSD is not a security under federal securities laws, and it is willing to challenge the SEC in court.
However, there are several potential scenarios that could play out such as Paxos conceding that BUSD is a security and settling with the SEC, prompting other stablecoin issuers to follow Paxos and register. Alternatively, the SEC may regulate the assets backing stablecoins and force digital currency issuers to disclose their operations to the market.