Paxos published a letter from its CEO, Charles Cascarilla, on the 21st of February in which the executive discussed the company’s ill-fated BUSD stablecoin.
On February 13, action by New York regulators led Paxos to stop issuing its Binance USD (BUSD) stablecoin. Although Paxos did, the United States Securities and Exchange Commission issued separately a Wells notice prospectively alleging that BUSD is a security.
The company disputed this last claim. Cascarilla wrote today:
“According to (the Howey and Reves tests), BUSD does not meet the criteria to be a security. Our stablecoins are always backed by cash and equivalents – dollars and US Treasuries, but never securities.
While the Howey test defines many investment contracts as a security, the Reves test uses a “family resemblance” test to determine whether an asset is a security. As such, Paxos aims to disprove that BUSD is a very broadly defined security.
Cascarilla said Paxos is involved in “constructive discussions” with the U.S. Securities and Exchange Commission (SEC) on this matter and that those discussions are taking place in private. He said the firm will share more information when it is possible to do so.
He also said Paxos could “defend (its) position in litigation,” echoing previous statements in which the company said it would “pursue vigorously if necessary.” If Paxos follows through and defends itself in court, it will become one of the few other high-profile crypto projects – including Ripple, LBRY, Telegram, and Kin – to challenge the SEC.
Cascarilla added that Paxos has facilitated over $2.8 billion in Binance USD buybacks without cryptocurrency market disruption. These buybacks continue from the $300 million in buybacks reported by Crypto Slate on February 14.
Cascarilla also noted that Paxos is engaging with regulators on other issues. The company is pursuing an application with the Office of the Comptroller of the Currency (OCC) whereby it seeks to obtain a banking charter as well as an application with the SEC whereby it intends to act as a clearing agency.
Today’s letter from Paxos is a public version of a letter the company sent to internal employees on Saturday. Various news publications quoted the letter in part today.