Does Binance USD (BUSD) Pass The Howey Test? US SEC Targeting Stablecoins Next?

U.S. Securities and Exchange Commission’s (SEC) crackdown on the digital asset market continues. The financial watchdog has reportedly warned to notify the Paxos Trust Co. that it is planning to prosecute the company for breaching U.S. investor protection laws.

The U.S. SEC in a letter issued to Paxos allegedly stated that Binance USD (BUSD), a stablecoin issued by Paxos is an unregistered security. However, legal experts found the SEC’s new claim to be suspicious and defaulting. This raises a direct question “Does BUSD satisfy The Howey Test?”

BUSD A Security?

Adam Cochran in a Twitter thread raised questions over the SEC’s latest claim. By bringing Howey Test, which determines whether a transaction qualifies as an “investment contract”, into the game the commission wants to claim that the BUSD is a security.

This directly suggests that the SEC believes that there is an expectation of “profit” by investing in a stablecoin. Meanwhile, experts state that “Securities is a much broader category which is being defined by the 1933 Securities Act. However, the Commission’s actions prove how vague the act is.

Assets like debenture, certificate of interest, evidence of indebtedness and more hold underlying treasuries which makes them more like a money market fund. This exposes holders to security even if holders don’t earn from it. While this also raises an argument that they can be a security.

Experts hint that people bragging that the SEC got it wrong as BUSD doesn’t pass the Howey Test needs to reevaluate as the commission has very knowledgeable securities counsel.

Now, the question here is if one doesn’t earn from it then how can it be a security. There is no need for good or lucrative security to be security.

Cochran suggested that if one is holding or securing a value for them, while you are trusting them to do it and not otherwise exempted. It is a security.

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