As per Morgan Stanley, reduced stablecoin issuance is bad news for cryptocurrency trading. The New York-based banking company detailed the advantages of stablecoins to cryptocurrency trading in a paper published on Monday. Also, Morgan Stanley noted that stablecoin products might threaten the established banking industry.
Stablecoin Issuance to Become Heavily Regulated
Due to its growing popularity, the issue of stablecoins is expected to be subject to more regulation by the United States government, as predicted in a recent analysis by Morgan Stanley. However, owing to the distribution of unregistered securities, several of these regulatory initiatives may be counterproductive to promoting stablecoins.
Morgan Stanley noted (1) that US regulators have started restricting stablecoin products despite their significance in the crypto market. The recent Paxos BUSD instance is a good illustration of such government action on stablecoin supply.
Potential SEC Suit Against Paxos Over Unregistered BUSD
An SEC lawsuit notification was reportedly received by stablecoin issuer Paxos yesterday (SEC). The Commission claims that the blockchain startup broke laws meant to safeguard investors by issuing Binance USD securities without first registering them.
A representative from Binance tried to clarify if Paxos' BUSD coins were subject to SEC regulation, but Paxos remained silent on the issue. BUSD, the representative said, is a Paxos-issued and Paxos-owned product, even though Binance licensed its brand to Paxos.
Also, the Binance rep mentioned that the New York Department of Financial Services oversees Paxos. The representative elaborated on why stablecoins are necessary, saying:
If access to stablecoins were restricted, it would have a devastating effect on millions of individuals worldwide looking for a haven from the turbulence of the markets. We'll keep an eye on things, and in the meanwhile, our users all around the world may choose from a variety of stablecoins.
NYDFS Action Against BUSD
But after hearing what Binance's spokesman said, the NYDFS issued an urgent order to Paxos to stop distributing BUSD stablecoins. This is the first time a major financial services authority has taken action against the stablecoin industry.
According to the NYDFS's directive, Paxos can no longer create stablecoins, while it may continue to offer related services. The corporation has redemption management flexibility till February 2019. Paxos stated in a press release,
Both new and existing Paxos clients can exchange their BUSD tokens for Pax Dollar (USDP), a controlled US dollar-backed stablecoin issued by Paxos Trust.
In addition, Paxos and Binance promised their clientele that their money was secure because of their substantial reserve reserves. Also, Paxos stated that USDP and pax gold (PAXG), its native stablecoins, are unaffected by the NYDFS' decision.
Changpeng Zhao, CEO of Binance, recently commented on the Paxos-NYDFS news, stating his exchange's commitment to BUSD for the near future. Zhao said that Binance "will make product modifications properly" when consumers eventually switch to alternative stablecoins.
Meanwhile, most major crypto tokens continue consolidating. Bitcoin is trading @ $22,026, up 1.1% on daily charts, and Ethereum is trading at $ 1542, up by 2.5%.