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- Paxos, the BUSD issuer, received a letter from the SEC on allegations of being unregistered security.
- The investigation could be a detriment on Binance’s part as NYDFS orders a stop to BUSD minting.
Binance USD [BUSD] holders might be faced with a heavy cross to bear after the U.S. SEC notified its issuer of a potential probe. Wall Street Journal (WSJ), who seemed very familiar with the matter, reported that Paxos Trust Co. had received a letter pertaining to the issue from the regulator.
Read Binance Coin [BNB] Price Prediction 2023-2024
A BUSD investigation holds Binance to account
But why is the SEC putting BUSD at risk and its holders in fear? According to the 12 February report, the regulator plans to sue the firm for issuing unregistered security and violating its investors’ protection laws.
This new probe serves as the third clampdown on cryptocurrencies in the last two weeks. A few days ago, crypto exchange Kraken had to suspend its staking activities after a $30 million settlement with the SEC. Days later, Coinbase CEO alerted the crypto community about a possible witch hunt on Ethereum [ETH] staking too.
With the WSJ revelation in play, it could mean woe for the seventh-placed cryptocurrency in market value and third-largest stablecoin. However, retail holders might not be the most affected if a judgment favors the SEC.
Binance, who also doubles as Paxos’ partner, could be the biggest victim. According to Nansen, 90% of BUSD is held on the exchange. This implies that both institutional and retail prefer to store the stablecoin on its issuer-partner exchange.
BUSD accounts for $21.7% of current Binance token holdings*, here's the dashboard link: https://t.co/x1ITMCFNRE
*The value of the token holdings in the wallet addresses provided by the exchanges pic.twitter.com/DT39t8QQZ6
— Nansen ? (@nansen_ai) February 13, 2023
Apart from that, the on-chain analytics database holds about 21.7% BUSD in its treasury. This data above makes Binance one of the biggest holders of the 1:1 USD-backed stablecoin.
Exits on the way?
Following the report, BUSD lost its peg to the dollar. According to CoinMarketCap, the stablecoin price was $0.09993 at press time. But on another note, there seems to be exits from holding the coin.
As of the early hours of 13 February, Nansen data revealed that about $57 million worth of BUSD had left exchanges in the last seven days. And, this was the work of a single jump trader who still held $18.8 million in the wallet.
Source: Nansen
Realistic or not, here’s BUSD’s market cap in BNB’s terms
Meanwhile, details from the information assessed above showed that BUSD has been starved of deposits in the last 24 hours. This condition might infer caution taken by investors following the disclosure.
However, the SEC was not the only one in the BUSD case. The New York Department of Financial Services (NYDFS), which regulates stablecoins in the U.S., also looked into the matter earlier.
In recent times, SEC chair Gary Gensler has repeated in several interviews that the regulator would be going after several unregistered offers in the coming weeks.
Meanwhile, recently emerged reports from WSJ showed that the NYDFS had directed Paxos to stop minting BUSD. Binance CEO CZ, also confirmed it, noting that the stablecoin’s market cap would decrease over time.
2/ We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS).
Paxos is regulated by NYDFS.
BUSD is a stablecoin wholly owned and managed by Paxos.
— CZ ? Binance (@cz_binance) February 13, 2023
