Paxos will be sued by SEC over Stablecoin

According to the Wall Street Journal, the US Securities and Exchange Commission (SEC) intends to sue stablecoin issuer Paxos, which is behind the Pax Dollar (USDP) and Binance USD (BUSD) tokens, over the latter stablecoin.

The commission does not comment on the existence or nonexistence of a potential investigation according to an SEC spokesperson.

In the report, the SEC claims that BUSD is an unregistered security. The announcement comes just days after CoinDesk reported that Paxos is being investigated by the New York Department of Financial Services, though the scope of the investigation is unknown.

BUSD is a Binance-branded stablecoin issued by Paxos, a trust company based in New York with a provisional charter from the Office of the Comptroller of the Currency, a federal bank regulator.

Paxos spokespersons did not immediately respond to requests for comment.

The announcement comes just days after the SEC settled charges with crypto exchange Kraken, alleging that its staking services constituted an unregistered securities offering. Under the terms of the settlement, Kraken did not admit or deny the charges, but it did shut down all its US staking programs.

Last month, Binance admitted that it had not always maintained the proper balance to back Binance-Peg BUSD (PBUSD), a wrapped version of BUSD that is backed by BUSD and is offered on non-Ethereum networks. Binance stated that “on occasion in the past, there was a timing mismatch in backing Binance-Peg BUSD with BUSD” after Bloomberg reported that there were issues with how PBUSD’s backing was displayed. In a blog post, the crypto exchange claimed that while there were issues with “publicly viewable data,” user redemptions were unaffected.

About Paxos

Paxos is an algorithm that allows a distributed group of computers (such as a cluster of distributed database nodes) to reach consensus over an asynchronous network. One or more of the computers proposes a value to Paxos in order to reach agreement. When a majority of the computers running Paxos agree on one of the proposed values, consensus is reached.

In general, Paxos chooses a single value from one or more proposed values and then broadcasts that value to all cooperating computers. After running the Paxos algorithm, all of the computers (or database nodes) agree on the proposed value, and the cluster clock advances.

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