Paxos published a letter from its CEO, Charles Cascarilla, on Feb. 21 in which the executive discussed the company’s ill-fated BUSD stablecoin.
On Feb. 13, action from New York regulators led Paxos to stop issuing its BINANCE USD (BUSD) stablecoin. Though Paxos did so, the U.S. Securities and Exchange Commission separately issued a Wells Notice prospectively alleging that BUSD is a security.
The company has contested the latter assertion. Cascarilla wrote today:
“Under [the Howey and Reves tests], BUSD does not meet the criteria to be a security. Our stablecoins are always backed by cash and equivalents–dollars and US Treasury bills, but never securities.”
While the Howey Test defines many investment contracts as a security, the Reves test uses a “family resemblance” test to determine whether an asset is a security. As such, Paxos aims to disprove that BUSD is a security in a very broad sense.
Cascarilla said that Paxos is involved in “constructive discussions” with the U.S. Securities and Exchange Commission (SEC) on the matter and that these discussions occur privately. He said that the firm will share more information when it is possible to do.
He also said that Paxos may “defend [its] position in litigation,” echoing earlier statements in which the company said it will “vigorously litigate if necessary.” If Paxos follows through and defends itself in court, it will become one of just a few other high-profile crypto projects — including Ripple, LBRY, Telegram, and Kin — to challenge the SEC.
Cascarilla added that Paxos has facilitated more than $2.8 billion in Binance USD redemptions without disruption in the cryptocurrency market. Those redemptions continue from the $300 million of redemptions reported by Crypto Slate on Feb. 14.
Cascarilla additionally noted that Paxos is engaging with regulators on other matters. The company is pursuing an application with the Office of the Comptroller of the Currency (OCC) through which it aims to obtain a bank charter as well as an application with the SEC through which it intends to act as a clearing agency.
Today’s letter from Paxos is a public version of a letter that the firm sent to internal employees on Saturday. Various news publications quoted the letter in part today.
The SEC's notice to Paxos to stop minting BUSD could have longstanding implications on the crypto market. CryptoSlate's new report explores the recent and potential consequences of enforcement action against Paxos.
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