🐻 Does the SEC want stablecoins dead?

Binance, Paxos and Circle are caught in an entanglement

AuthorAuthor

Rahul & Oleena
February 16, 2023

GM friends, welcome back to another issue of Web3 Seems Legit. In the past week, regulatory FUD was the hot topic and pushed the price of crypto down. But it didn’t last for long because we’re back up now 🔥!

Despite the SEC’s war on crypto staking, stablecoins, custodians…(the list goes on), Bitcoin is enjoying a mini bull run at $24,000 🚀 thanks to the hype brought by Bitcoin NFTs and being the only crypto that isn’t considered a security, according to the SEC.

In this issue:

📣The big story of the week. Does the SEC want stablecoins dead?

🚀The good. Bitcoin NFTs reach 100,000 inscriptions and bankrupt crypto lender Celsius announces their path forward.

🐻The big, bad FUD. The SEC drafts a proposal that could make it more difficult for crypto companies to provide custody.

📣The big story of the week

Does the SEC want stablecoins dead?

Here we FUD again. Shortly after the SEC announced their crackdown on crypto staking and forced Kraken to shut down their staking-as-a-service program, they are now going after stablecoins, specifically Binance USD (BUSD). Here’s a breakdown of the tea 🍵.

Paxos and BUSD break up 💔

On the day before Valentine’s day, Paxos released an official statement announcing their break up with Binance. Oof, that's harsh 😔. So what went wrong?

BUSD is a fiat-backed stablecoin pegged to the US dollar. Since 2019, Paxos obtained licensing rights to use Binance’s name and brand and has been issuing BUSD for the world’s largest exchange.

However, Paxos is a regulated company registered with the New York Department of Financial Services (NYDFS). This means that whatever NYDFS wants, NYDFS gets, and according to this US regulator, there are “several unresolved issues related to Paxos’ oversight of its relationship with Binance.”

As a result, NYDFS ordered Paxos to stop minting BUSD and end the relationship with Binance.

To add salt to the breakup wound, the Securities Exchange Commissioner (SEC) sent a heads-up notice to Paxos that they intend to sue the company for issuing an unregistered security, aka BUSD. Wait, what?! Since when were stablecoins considered a security 🤔?

Immediately following the FUD, panic ensued and Binance withdrawals reached the largest outflow since the FTX scandal. Another good ol’ stress test 👍.

Something smells fishy 🐟

Nearly every time news like this breaks out, something fishier is always happening behind the scenes. For one, the SEC is only going after Paxos because of BUSD. Meanwhile, PAXG and USDP, Paxos’ own asset-backed tokens are fine 🤔.

Is there a coordinated attack happening against Binance? After the FTX scandal, we found out just how closely these centralized crypto giants work together, but also how willing they are to backstab one another at any given chance 👀.

This time, it was apparently Circle, Binance’s rival, that may have been going behind their back. According to Bloomberg, Circle (the issuer of USDC) alerted the NYDFS last fall that BUSD may not be fully backed with a 1:1 reserve.

This image pretty much sums up the three-way mess between Paxos, Binance and Circle 🤦‍♀️.

What does this mean for the rest of crypto?

As Paxos prepares to battle out this incoming SEC lawsuit, there are tons of concerns about what this means for the rest of the crypto industry. Are stablecoins now considered securities?

Who will the SEC go after next? No one seems to be safe, except for maybe one asset - Bitcoin 🙌. It may explain, in part, why BTC was pumping in the past 48 hours 🚀.

🚀The good

The hot new thing Ordinals, aka Bitcoin NFTs, reached its first 100,000 inscriptions. If they can keep it up, we’ll reach a million in no time…as long as it isn’t just a fad.

After months of waiting, bankrupt crypto lender Celsius finally announces its plan forward, which involves an acquisition agreement with NovaWulf.

🐻The big, bad FUD

The SEC is just on a roll now, aren’t they? A draft proposal by the SEC shows that they are trying to make it more difficult for crypto companies to become “qualified custodians”. More reasons to get yourself a cold wallet and self-custody your assets 👍.

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