What Would Happen to Binance If SEC Destroys BUSD?

    Simar Marwaha
    Simar Marwaha
    Published on March 06, 2023 06:12 AM

    BUSD being classified as a "unregistered security" by US regulatory entities has generated controversy in the market. Let's thoroughly study it and see how it will influence Binance and the SEC.

    What Would Happen to Binance If SEC Destroys BUSD?
    Source: Medium

    The market has been disturbed by BUSD's labeling as a "unregistered security" by US regulatory bodies. Since becoming involved in a regulatory dispute, BUSD's market cap has been rapidly declining.

    After hitting an all-time high of $23.04 billion in November 2022, the market value of the once-major stablecoin has fallen by more than 60% to $9.17 billion.

    The Paxos case is an example of the wider cryptocurrency exchange industry that the US Securities and Exchange Commission (SEC) is targeting for assault. The stablecoin market is plagued with ominous uncertainty. Even if the exchange does not create stablecoin, it is essential to Binance's ecosystem.

    Consequences of the Crackdown

    The SEC's argument that Binance is an unregistered securities exchange because BUSD is an unregistered security, in Adam Cochran's opinion, is "brutal 4D chess."

    He also opined that Binance had two choices: to settle or to allow a US agency to conduct discovery. In the first case, the SEC will have a "soft precedent" to harass other domestic crypto exchanges.

    “If they settled it would block the Voyager deal for sure, and result in a penalty and likely industry exclusion in the US for execs (takes out their market-making entity too?) But would also be ‘soft precedent’ to bully other US exchanges.”

    The latter situation, though, could be more destructive to Binance. Let us have a look at it towards the end.

    Paxos' Take on the Issue

    According to Paxos, BUSD does not qualify as a security under federal securities laws, clearly disagreeing with the SEC staff. Several business professionals believe that because there is no expectation of any kind of return, the BUSD issued by the firm does not qualify as an "investment contract" according to the Howey test.

    Nonetheless, it is also crucial to draw attention to the fact that the Securities Act of 1933 contains more than 30 characteristics that identify the security.

    Although Paxos agreed with the NYDFS's directive to stop issuing new BUSD, Binance's CEO CZ said that the exchange will still support BUSD. Stablecoin is a crucial part of Binance's business, thus, its crackdown is anticipated to harm Binance's overall financial performance, continued Kemmerer.

    The consequences are numerous if the SEC is successful in killing BUSD. A move like that may "embolden regulators to pursue additional stablecoins in the future," to name one possibility.

    The stablecoin market may significantly decline, according to Mohammad Taher Khayami, COO of the Dubai-based iTeller, as people grow weary of utilising these tokens out of concern that they may be shut down at any time. He added:

    “This, in turn, could lead to a decline in liquidity and trading volumes across the cryptocurrency market, which would be bad news for Binance and other exchanges that rely on stablecoins to facilitate trades.”

    Will Binance fall to the strike?

    The SEC's lawsuit against BUSD may be an indirect tactic to punish "offshore" cryptocurrency companies like Binance rather than the stablecoin project itself, according to Richard Mico, US CEO and chief legal officer of Banxa.

    Many people are concerned that the regulatory body is regulated by enforcement rather than through a clear regulatory framework since the SEC continues to clamp down on various aspects of the cryptocurrency business.

    Although the BUSD setback may impact Binance, many people still think the cryptocurrency exchange will recover from the most recent setback since it has a proven track record of adjusting to market shifts. The most recent strike might not prove to be lethal.

    How do you think this will impact the working of Binance and crypto regulation in general?