Confusion Spirals in Crypto as the US Cracks Down – Exchange Commission is on the warpath.

The US Securities and Exchange Commission is taking aim at crypto, with Paxos in its crosshairs. The agency intends to sue the firm for issuing BUSD, a stablecoin developed in partnership with the world’s largest crypto exchange, Binance.

The SEC declined to comment, but Paxos confirmed that the agency alleges BUSD should have been registered as a security in the US. This has sparked panic and confusion in the crypto industry, as a ruling against the issuing or use of BUSD could set a precedent that could be applied to all stablecoins—striking down a crucial piece of infrastructure in many crypto markets.

Stablecoins are designed to cling to a specific value, usually $1, and are backed by a combination of cash and bonds. They are “easy and fast” according to crypto analyst Noelle Acheson, helping traders jump on opportunities as they arise. The SEC defines securities as contracts that amount to “an investment of money, in a common enterprise, with a reasonable expectation of profit, to be derived from the efforts of others.” If stablecoins were universally determined to be securities, issuers would be required to register them with the SEC.

This crackdown is being described in crypto circles as Operation Choke Point 2.0—a reference to a program launched by the Obama administration under which US officials allegedly pressured banks into severing ties with disfavored industries like pornography and payday lending. Coppola says it feels like the SEC’s intention is to “drive crypto entirely offshore,” and out of the US altogether.

The move against Paxos is part of an enforcement action launched by the SEC in the aftermath of the collapse of crypto exchange FTX in November. Last week, the regulator announced that crypto exchange Kraken would halt one of its services in the US after charging it with failing to register a security. In January, Gemini and Genesis Global Capital were charged over different services offered to US customers.

It appears that this crackdown may be an attempt by the SEC to gain control over Binance—which operates only a limited service in the US—and Reuters reports that the US has long believed Binance facilitates money laundering activity. By taking aim at BUSD, which underpins much of Binance’s activity, it can effectively shut off access from a source of US dollars.

Until the SEC makes its intentions known, though, members of the crypto industry must wait and see what will happen if other stablecoin issuers like Circle or Tether are targeted next—as without stablecoins acting as a “bridge” between volatile coins trading would become more expensive and riskier and could bring down decentralized finance as a whole.

 


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