- With the subtle regulatory crackdown on Paxos and Binance, the crypto industry is on the edge.
- Industry leaders are convinced this turmoil will pass and advocate shunning FUD.
While the year 2022 was tagged as one of the most dramatic for the nascent digital currency ecosystem, 2023 has advanced with so much uncertainty. From the aftermath of the bankruptcy of Genesis Global, a subsidiary of the Digital Currency Group (DCG) to the current regulatory crackdown on staking by US regulators, the industry is experiencing more Fear, Uncertainty, and Doubt (FUD) than ever.
The SEC and subtle Binance crackdown
The United States Securities and Exchange Commission (SEC) brought an enforcement action against the Kraken trading platform last week. The regulator alleged that the exchange’s staking services is an unregistered security offering, a violation of securities laws it asked the firm to pay $30 million in fines for.
While the industry is still reeling from this reality, the commission filed a Wells Notice against Paxos for its Binance USD (BUSD) issuance. The regulator as well as the New York Department of Financial Services (NYDFS) are allegedly worried the company might not have scrutinized its relationship with Binance as it should.
With a total of over $15 billion in market capitalization, Binance offers a pegged token service whereby a portion of the BUSD is locked on Ethereum and the Binance-pegged version of the stablecoin is issued on BNB and other supported chains. These pegged BUSDs are worth $4.8 billion as of today.
The regulators are now worried the Binance version might not have been properly backed. Paxos has revealed it categorically disagrees with the US SEC’s categorization of its BUSD stablecoin as security. As reported by Crypto-News Flash, the company is not ruling out the options of pursuing litigation if it comes to that.
The company issued a statement to that effect saying;
“Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws. This SEC Wells notice pertains only to BUSD. To be clear, there are unequivocally no other allegations against Paxos. Paxos has always prioritized the safety of its customers’ assets. BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary,” the Paxis statement reads.
A number of analysts in the industry have highlighted that the attack on Paxos is an indirect attack on Binance, however, the crackdown seems to be affecting the firm a bit less at this time.
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Shunning FUD
Leaders in the digital currency ecosystem have advocated that users and investors in digital currencies should shun the FUD that is embroiling the industry at this time.
There have always been reasons to panic and while the US SEC crackdown appears to be weighing the valuation of assets down, the People’s Bank of China (PBoC) also banned Bitcoin services in China back in 2021. With the industry surviving that onslaught at the time, experts believe the same will happen at this time also.
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