Following today’s SEC lawsuit against token issuer Paxos, members of the Aave community are considering freezing Binance’s stablecoin BUSD, issued by Paxos, on the platform. Aave is a DeFi protocol that enables borrowers, lenders and staking parties to interact digitally using smart contracts.
Since Paxos will no longer issue new BUSD tokens, the supply is expected to gradually decrease to zero, according to a governance protocol made by Aave community member MarcZeller, who believes the move could “hurt peg arbitrage and the asset peg.
“Though there is no risk to the protocol, “BUSD has no prospect for growth,” MarcZeller added.
Several community members have expressed support for the proposal, with one individual even suggesting that Aave sell its BUSD holdings to reduce the company’s exposure to risk.
Paxos underfire
The US Securities and Exchange Commission (SEC) has reportedly warned Paxos Trust Co. that a lawsuit could be on the way. As per a source-based report by the Wall Street Journal, the agency could take legal enforcement for violating investor protection laws.
The watchdog told Paxos in a Wells Notice that platform-listed Binance USD is unregistered security, the report noted. However, it couldn’t be ascertained if the action stems from Paxos issuing the coin, listing it, or both.
Furthermore, it was reported that the New York Department of Financial Services (NYDFS) had ordered Paxos Trust, a blockchain corporation, to cease issuing BUSD. The proceedings by the New York regulator came shortly after the SEC’s wells notification to Paxos. According to a Binance statement, Paxos will continue to handle product redemptions.
