If the SEC takes action against Paxos and deems BUSD an unregistered security, it could have serious implications for the sprawling stablecoin market.
Other stablecoin issuers may have to follow Paxos and register or prepare for a legal battle with the SEC. The regulator will use the Howey test to determine whether BUSD is an investment contract, which could lead to more stringent regulation. Paxos has argued that BUSD is not a security under federal securities laws, and it is willing to challenge the SEC in court.
However, there are several potential scenarios that could play out such as Paxos conceding that BUSD is a security and settling with the SEC, prompting other stablecoin issuers to follow Paxos and register. Alternatively, the SEC may regulate the assets backing stablecoins and force digital currency issuers to disclose their operations to the market.
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