The C-Suite Report: Week 7 2023

Welcome to Insight for the Executive Mind, the go-to resource for business leaders seeking the latest news and analysis on the industry's most pressing issues. With our finger on the pulse of the financial and trading landscape, we provide a comprehensive view of the market, helping you stay ahead of the curve.

Here are the latest updates from the world of cryptocurrencies:

About the Paxos vs SEC ??

Regulators halt Paxos' minting of Binance's BUSD due to insufficient reserves (source: The Block)

Paxos, the issuer of the Binance-branded stablecoin BUSD, has been ordered by U.S. regulators to stop minting new tokens due to insufficient reserves to back the number of tokens it issued. Binance had implemented a new policy in September 2022, which automatically converted all USD coin (USDC) deposits into its own BUSD stablecoin, decreasing Circle Internet Financial's share of the stablecoin market. Following an investigation, regulators saw Binance, not Paxos, as the bad actor in the issue.

Binance CEO distances himself from BUSD stablecoin as regulators act (source: Coindesk)

Binance CEO Changpeng Zhao distanced himself from the Binance-branded stablecoin BUSD after U.S. regulatory action caused minting to cease. Zhao said that BUSD is not issued by Binance, but rather by Paxos. Zhao also hit out at claims that rival stablecoin issuer Circle had sounded the alarm with NYDFS over concerns that Binance did not have enough reserves to back up BUSD tokens.

Paxos, the issuer of the Binance-branded stablecoin BUSD, has received a Wells Notice from the SEC indicating a possible enforcement action is forthcoming. (source: Coindesk)

However, Paxos has stated that it “categorically disagrees” with the SEC staff because BUSD is not a security under federal securities laws.

The stablecoin issuer also confirmed that it is always backed 1:1 with U.S. dollar-denominated reserves, thoroughly segregated, and held in bankruptcy remote accounts. Paxos said it is “prepared to vigorously litigate if necessary” to prove that BUSD is not a security.

Paxos has recently burned over 684 million Binance USD (BUSD) for U.S. dollar redemptions amid regulatory scrutiny. (source: The Block)

This comes just after the company received a Wells notice from the SEC, which indicates a possible enforcement action is forthcoming. The redemptions will be supported through at least February 2024.

Meanwhile, Paxos also confirmed that it had received a Wells notice from the SEC, indicating a possible enforcement action against it is forthcoming. Paxos said it categorically disagrees with the SEC staff that BUSD is a security and is prepared to litigate if necessary vigorously.

Exchanges (Kraken & Coinbase) ?? vs SEC ??

SEC charges Kraken with the unregistered sale of securities, criminalizing staking-as-a-service (source: Cointelegraph)

The Securities and Exchange Commission (SEC) has charged Kraken, a cryptocurrency exchange, with the unregistered sale of securities, essentially criminalizing staking-as-a-service for all US-based exchanges. Kraken has agreed to pay $30m in disgorgement, prejudgment interest, and civil penalties and to end its on-chain staking services for US clients. Kraken's statement noted that it would continue to offer staking services for non-US clients through a separate subsidiary.

SEC Enforcement Against Kraken Could Benefit Lido, Frax, and Rocket Pool (source: Cointelegraph)

The recent $30 million settlement between Kraken and the SEC over its centralized staking program has sent shockwaves through the crypto industry, with investors becoming fearful of regulatory enforcement. However, the crackdown on centralized exchanges offering staking-as-a-service programs has opened doors for decentralized liquid staking tokens like Lido, Rocket Pool, and Frax. If U.S.-based centralized exchanges are forced to cease offering staking services, liquid staking derivatives providers could absorb that market share. This has led to a rebound in LDO, RPL, and FXS prices, and with decentralized staking providers like Lido and Rocket Pool offering an alternative, this could be a bullish sign for their future.

Thank you for reading the first edition of our newsletter. We hope you found it informative and valuable. As we continue developing this newsletter, we would love to hear your feedback on what you'd like to see in future editions and suggestions on how we can improve. Please don't hesitate to reach out to us with your thoughts and ideas. We look forward to hearing from you and continuing to deliver valuable content in the future.