The New York State Department of Financial Services (NYDFS) recently directed the Paxos Trust to cease issuing the BUSD stablecoin. Via a Wells notice to Paxos, the U.S. SEC hinted at a possible legal investigation into Paxos for alleged breach of securities regulations.
Coinbase, though, tends to disagree when it comes to BUSD and other stablecoins being perceived as securities by the U.S. regulators. Clarifying its stance on stablecoins, Coinbase tweeted:
This week the NYDFS ordered US-based Paxos to stop issuing US dollar-denominated stablecoin BUSD and the SEC issued a Wells notice to Paxos. We don’t know what aspects of BUSD might be of interest to the SEC.
— Coinbase 🛡️ (@coinbase) February 15, 2023
What we do know: stablecoins are not securities 🧵
In the Twitter thread, Coinbase throws light on what the U.S. dollar-pegged stablecoins are. The exchange also explains how stablecoins are developing an “equitable and efficient financial system.”
Coinbase states it’s imperative that the US fosters development of stablecoins at home.
The US dollar-pegged stablecoins (or cash equivalent) are digital currencies pegged to a reserve asset—such as US Dollar. Stablecoins, by their very design, stay equal to their peg’s value.
Coinbase clarifies, One way to peg digital currency to USD: take $1 in cash or cash equivalents for every stablecoin created and hold it in cash, t-bills, or other cash equivalent funds that back up the full value in circulation. Disclosures then drive transparency of the 1:1 backing, like USDC.
To the question as to why to use a stablecoin like USDC, Coinbase explains fiat-pegged stablecoins’ value remains stable with time. Being digital makes them faster, efficient, and highly accessible to initiate commerce. Their stable value over a period of time also means they are not being used as investments, clarifies Coinbase.
Customers tend to use stablecoins (such as USDC) as they “transcend banking hours and global borders.” If anyone in the world is being sent USDC, they would get it instantly. A U.S. bank account is not required “to hold value pegged to USD”—also thwarting the ill-effects of local currency devaluation.
As for businesses, stablecoins (such as USDC) are cost-effective and also ease and expedite payments’ settlements. Stablecoins enable instantaneous payment receipts, unlike “intermediaries banks and credit card companies.” Stablecoins solve the issues surrounding traditional finance by building an efficient and equitable financial system, per Coinbase.
The exchange states imposing securities law onto stablecoins through enforcement instead of guidance or dialogue with the industry will simply push innovation offshore and weaken our global role.
Stablecoins are regulated, so also Paxos as a NY Trust Company by NYDFS. The regulation of USDC is done as a stored value instrument under the U.S. state money transmitter laws.
