The New York Department of Financial Services (NYDFS) has ordered blockchain company Paxos Trust to stop issuing Binance USD, which is dollar-pegged. The regulator’s actions come after the United States Securities and Exchange Commission (SEC) issued a wells notice to Paxos, alleging that Binance USD is an unregistered security.
SEC Notice to Paxos
The SEC’s notice to Paxos is a letter the regulator uses to inform companies of planned enforcement action. The NYDFS has asked Paxos to stop creating more of its BUSD token, but the company will continue to manage redemptions of the product, according to a Binance statement.
Growing Scrutiny in the Crypto Market
The regulatory action on the third largest stablecoin comes amid growing scrutiny in the crypto market. Last week, the SEC declared that crypto staking services violate securities law, forcing Kraken to close its staking offering. However, Coinbase is challenging the SEC’s stance, claiming that its staking products are not securities.
Security Allegations against Stablecoins
The security debate in the crypto market has been ongoing for some time, with the SEC’s lawsuit against Ripple, the issuer behind the XRP token, bringing the issue into focus. Generally, if an investment of money is made with the expectation of a profit through the efforts of someone other than the investor, it is considered a security. The security allegations against a stablecoin could present a major challenge to the crypto industry, as stablecoins are a popular entry point for users taking their first steps into crypto.