Technically speaking, there are actually two types of stablecoins whose full name is BUSD. One is BUSD, which is issued by Paxos and minted by Ethereum using the ERC-20 mechanism; and the other is a stablecoin of the same value provided by Binance through the Binance peg mechanism "Binance-Peg"/"BEP-20", which locks BUSD on Ethereum. The purpose is to use it as a stable trading token at a long-term price of 1:1 to the US dollar.

Therefore, in fact, Binance itself did not issue BUSD on ERC-20. We can only say that Binance has a cooperative relationship with Paxos and further provides BUSD, a BEP-20 stablecoin corresponding to the ERC-20 value.

The BUSD currently referred to by the market is mostly the BUSD under the latter BEP-20 mechanism, which was once the third largest stablecoin in the virtual currency circle. It is currently said that Binance still holds 14.4 billion BUSD, accounting for 90% of the total issuance.

Why did Paxos end its partnership with Binance?

In February 2023, the SEC warned that it might have the opportunity to sue Paxos Trust Company, the issuer of BUSD (ERC-20), stating that BUSD was an "unregistered security."

It should be noted that this is just a "warning" and the SEC has not formally filed a lawsuit. Paxos can also respond to the SEC to explain the rationality of its mechanism.
However, after the SEC issued a notice, Paxos immediately terminated its partnership with Binance and stopped issuing ERC-20 BUSD. On the same day, Binance CEO Zhao Changpeng announced that Binance would stop using BUSD as the main trading currency, but also stated that it would continue to support the existing BUSD value.

BUSD/Paxos and the impact of the US SEC incident

Possibility 1: BUSD may gradually exit the market

Binance’s Zhao Changpeng said that in the future, BUSD will no longer be the main transaction, and intends to transfer the value of BUSD to other stablecoins. We do not have more details of the implementation at present, but if it is true, and Paxos no longer issues new ERC-20 BUSD, it means that the BUSD in the market may gradually decrease.

Possibility 2: The US SEC will start to initiate a regulatory mechanism

The greater revelation of the SEC's prosecution of Paxos this time may be that it also warns the issuers of cryptocurrency stablecoins that operate in a similar way to Paxos, including Tether, which issues USDT. If the SEC intervenes in Paxos, other cryptocurrency issuers may also be targeted by the SEC. The United States has long intended to regulate cryptocurrencies, and the action against BUSD may be just the first step.

The impact of BUSD delisting: Cryptocurrency is still under close scrutiny by the US

On August 31, 2023, Binance stated that it would gradually delist BUSD from spot and leveraged trading pairs with different currencies, and would continue to gradually suspend its related services.

Binance has repeatedly emphasized that if any users or investors currently hold BUSD, they must convert BUSD into other assets before February 2024, including through spot trading or flash exchange.

The BUSD delisting incident shows that Binance and Paxos have been "defeated" by the US SEC. Binance and Paxos have some tricks in the cryptocurrency circle, but in actual implementation, they are still within the market framework, and Paxos is indeed certified by the New York State Department of Financial Services. When the SEC declared that BUSD was an unregistered security and intended to sue, Binance and Paxos were powerless to fight back.

This incident shows that cryptocurrencies have always pursued decentralization, but the United States is almost clearly interested in accelerating the regulation of cryptocurrencies. Perhaps it is not necessary to have only one of the two, but the future development of cryptocurrencies may continue to be affected by the orientation of the United States, especially the SEC.

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