According to reports, the U.S. Securities and Exchange Commission is investigating Paxos Trust Co. as the issuer of BUSD, the third-largest stablecoin in the world. This development comes just a week after NYDFS, the New York regulator, launched an investigation into Paxos Trust Co.
This could be another major escalation of the SEC’s attack on crypto staking, which it launched last week. According to people familiar with the matter, the SEC’s enforcement personnel sent a letter to Paxos called Well notice. This letter is used by the securities regulator to inform companies about upcoming enforcement.

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The SEC pointed out that Binance’s stablecoin BUSD, issued by Paxos, is an unregistered security. BUSD, which has a market capitalization of $16.1 billion, is currently the third largest stablecoin in crypto.
BUSD is similar to the top-two stablecoins. It is pegged to USD in a one to one ratio. Paxos began issuing BUSD stablecoin in 2019 after the two formed a partnership in 2019. It is not clear if the SEC’s notice relates specifically to Paxos’s issuance or listing of BUSD.

A Paxos spokeswoman told WSJ that the company does not comment on individual matters. Binance stated that Paxos, which licenses its name, is issuing BUSD. It stated that it would continue to monitor the situation.
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NYDFS Investigating Paxos Over BUSD
The New York State Department of Financial Services, NYDFS, began probing Paxos last week over concerns about its issuance of Binance’s BUSD stablecoin. Bloomberg was told by a spokesperson for the SEC:
“The department maintains constant contact with regulated entities in order to understand vulnerabilities and risk to consumers as well as the institutions themselves from the crypto market volatility we are experiencing.”

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Binance can respond to the SEC by responding to the Wells notices. This will explain why it should not proceed with the lawsuit. The Wells notices don’t mean that the SEC will not initiate an action. The agency’s five commissioners must vote in order to authorize the enforcement settlement.
The SEC has not taken any major actions against the top stablecoin market issuers. The agency is increasing its oversight of the market every day.
Binance clarified its market position by stating that BUSD is a 1-to-1 backed stablecoin and one of the most transparent stablecoins currently in existence.

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