Paxos Trust, the issuer of Binance's controversial stablecoin, is in hot water with the US Securities and Exchange Commission (SEC), as the formidable regulatory agency claims the company was supposed to register the token as a security, according to Reuters. Paxos CEO Charles Cascarilla confirmed in an internal email that his company is having productive conversations with the SEC, and is willing to pursue litigation if there's such a necessity.
Stablecoins have gained significant traction in the crypto market, providing an opportunity for traders to move in and out of volatile cryptocurrencies like Bitcoin, and as a hedge against inflation.
As traders seek an easier means to buy and sell cryptocurrencies, stablecoins are becoming increasingly popular. They also enable trading without requiring bank settlements, which can take days and lead to missed trading opportunities.
However, the burgeoning stablecoin industry has been under scrutiny from regulatory authorities, with New York's Department of Financial Services (NYDFS) forcing Paxos to halt the minting of BUSD, which was one of the top stablecoins.Notably, the New York financial regulator also discovered that Paxos had failed to conduct regular risk assessments and due diligence of Binance and customers holding BUSD issued by Paxos.
Although Paxos has agreed to halt the issuance of new BUSD tokens this month, it will still be able to support the existing tokens for one more year.
The Paxos boss maintains that the decision to sever ties with the crypto giant was unrelated to the recent enforcement action or the ongoing discussions with the SEC regarding Binance USD.
Previously, the SEC told Paxos that it was intending to take the firm to court for violating investor protection laws. Interestingly, the regulatory agency had not previously gone after any top stablecoin issuer.
Meanwhile, a recent Bloomberg report stated that Circle, the issuer of the popular USDC stablecoin, raised concerns about Binance's handling of reserves months prior to New York regulators' intervention, shedding light on the ongoing battle between the two companies for supremacy in the lucrative stablecoin market.