SEC Probes Stablecoin Potential Investor-Protection Violations
• The US Securities and Exchange Commission (SEC) is investigating potential violations of investor-protection laws related to stablecoins.
• Paxos Trust Co has been told to stop minting its stablecoin BUSD indefinitely.
• Coinbase Global Inc. has also disclosed that the SEC is investigating its stablecoin product.
SEC Probing Potential Violations of Investor Protection Laws
The US Securities and Exchange Commission (SEC) is investigating whether stablecoins are among the products that were issued in violation of investor-protection laws. The SEC enforcement lawyers have told Paxos Trust Co. that regulators plan to take enforcement action over its stablecoin, BUSD, and have pushed the company into making the decision to stop minting BUSD indefinitely. Coinbase Global Inc. has also disclosed that the SEC is investigating its stablecoin product.
Stablecoins Explained
Stablecoins are a form of cryptocurrency that makes it easier to trade other digital assets. Each unit is supposed to maintain a value of $1. Regulating them could take the SEC into the domain of overseeing payment products, something it doesn’t do. Stablecoin issuers say they are backed 1-for-1 by cash or cash equivalents such as U.S. dollars and Treasury securities, although Tether has invested in riskier assets such as corporate debt and has made money by lending tethers to customers, a practice it is winding down..
Supreme Court Test Used To Spot Cryptocurrencies That Are Securities
The Supreme Court test used by regulators known as Howey governs notes or securities that promise repayment of money often with interest. Stablecoin users don’t expect any profits from owning these assets which fits one prong of this test used for spotting cryptocurrencies which may be deemed securities by the SEC .
Commodity Futures Trading Commission & NY State Department Of Financial Services Label Tether & BUSD As „Virtual Currencies“
The Commodity Futures Trading Commission and the New York State Department of Financial Services have labeled Tether and BUSD as “virtual currencies” however this does not mean the SEC can’t allege they are securities according to lawyers involved in this case .
Conclusion
This scandal against a major stablecoin issuer was a significant jolt to an industry already suffering from multiple shocks recently . It remains unclear how far reaching implications this investigation will have on similar coins within this space but it shows clear intent from regulatory bodies for more oversight on digital currency products such as these .