Since being involved in regulatory issues, BUSD's market cap has continued to plummet. Since hitting an all-time high of $23.04 billion in November 2022, the once-preferred stablecoin's market cap has plummeted more than 60% to $9.17 billion.
The Paxos situation shows a bigger picture of the situation of crypto exchanges under attack from the United States Securities and Exchange Commission (SEC). Uncertainty is mounting over the stablecoin industry. Despite the fact that Binance does not issue BUSD, it is nevertheless a critical component to its ecosystem.
Adam Cochran believes the SEC is of the view that Binance is an unregistered securities exchange on the grounds that BUSD is an unregistered security. He further speculated that Binance has two options to resolve it or allow it to be investigated by US agencies.
"If they choose to go through with it, the SEC will certainly block the Voyager deal, and result in penalties and possible exclusion of the industry in the US."
On the other hand, the latter scenario can have worse consequences. David Kemmerer, co-founder and CEO of CoinLedger, stated,
“If BUSD is determined to be a security by regulators, Binance will be subject to additional oversight and regulation over stablecoins. Crypto exchanges have to follow strict SEC rules to issue BUSD in their platform.”
Paxos categorically disagreed with the SEC staff, saying that BUSD is not a security under federal securities laws. The same sentiment was voiced by many industry experts that the BUSD issued by the firm was not an "investment contract".
Although Paxos has complied with the NYDFS order to stop minting new BUSD, the head of CZ Binance said the exchange will continue to support BUSD. With stablecoins being a core component of Binance's business, the crackdown is expected to affect Binance's entire bottom line, Kemmerer added.
If the SEC succeeds in blocking BUSD, the implications are many. For one thing, such a move could "encourage regulators to target other stablecoins in the future." According to Mohammad Taher Khayami, COO of iTeller.
"This, in turn, could lead to a decrease in liquidity and trading volume across the cryptocurrency market, which would be bad news for Binance and other exchanges that rely on stablecoins to facilitate trading."
