TL;DR:
- Tether’s USDT grew by nearly $1 billion after a regulatory crackdown against BUSD, a rival stablecoin issued by Paxos.
- BUSD, the third-largest stablecoin, has experienced a decline in market cap due to regulatory pressure and the SEC’s pending lawsuit against Paxos Trust, the issuer of the stablecoin.
- Paxos confirmed that it will stop minting new units of BUSD following orders from the New York Department of Financial Services (NYDFS). BUSD’s losses may indicate that investors seeking stablecoin liquidity are moving to Tether to escape future regulatory crackdowns in the US.
- Tether is owned by the Hong Kong-based company iFinex and has a market dominance of 50.77% in the stablecoin market worth $136.93 billion.
Stablecoins
Stablecoins like BUSD and USDT are cryptocurrencies that are value pegged to the US dollar. Each is backed by multi-billion dollar reserves comprised mostly of cash and US T-bills, making them a backbone of the crypto economy. Investors often trade against such tokens on centralized finance (CeFi) and decentralized finance (DeFi) exchanges when buying other more volatile cryptos.
Stablecoins have been gaining popularity in the cryptocurrency world due to their ability to maintain a stable value by being pegged to a stable asset, such as the US dollar. BUSD, the third-largest stablecoin, has recently experienced a decline in market cap due to regulatory pressure and pending legal action from the SEC against Paxos Trust, the issuer of the stablecoin. As a result, Tether’s USDT stablecoin has gained market share and increased in market cap, reaching a dominance of over 50% in the stablecoin market.
Stablecoins are cryptocurrencies designed to maintain a stable value relative to a “stable” asset, such as the US dollar, through collateralization or algorithmic mechanisms. They offer the benefits of blockchain technology, such as fast, low-cost transfers, with the added stability of being pegged to a fiat currency.
Circle complains
Stablecoin giant Circle Internet Financial issued a complaint to the New York State Department of Financial Services last year about rival crypto firm Binance’s mismanagement of reserves for its own tokens. Circle, which operates the USDC stablecoin, alerted the watchdog to issues it surfaced in blockchain data showing that Binance did not store enough crypto in reserve to support tokens it had issued.
Binance began converting most major stablecoins, including USDC (but not USDT), into BUSD when deposited on the exchange in September. Any USDC sent to Binance was effectively sucked away into BUSD’s market cap, which had a noticeable impact on each coin’s market dominance. Paxos has been sent a Wells notice by the SEC for allegedly issuing BUSD as an unregistered security.
USDT and BUSD are two of the most widely used stablecoins, along with USDC, PAX, and DAI. However, these stablecoins are not without controversy. Tether, the company behind USDT, has faced accusations of not fully backing its stablecoin with US dollars and has been the subject of a lawsuit by the New York Attorney General.
Paxos receives notice
Similarly, Paxos, the company behind BUSD, has received a Wells notice from the SEC for allegedly issuing BUSD as an unregistered security. Stablecoin issuer Circle Internet Financial has warned the New York regulator about rival Binance’s token, which it claims was not fully backed by reserves, leading to unresolved issues with Paxos.
The SEC
The SEC has been taking aim at the cryptocurrency industry, with a particular focus on stablecoins. In December 2022, the SEC sued Ripple, claiming that its XRP token was a security, not a cryptocurrency. The regulator has also taken action against decentralized finance (DeFi) projects, such as Uniswap Labs, for allegedly operating unregistered securities exchanges.
Stablecoins are becoming an increasingly important part of the cryptocurrency ecosystem. USDT and BUSD are two of the most widely used stablecoins, but they are not without controversy. The SEC has been taking aim at the cryptocurrency industry, with a particular focus on stablecoins, and has been issuing Wells notices to stablecoin issuers. While stablecoins offer the benefits of blockchain technology and fiat currency stability, their regulatory future is uncertain.
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