Bitaigen Research 
USDC currently has no public evidence indicating that regulators will halt its issuance; it continues to operate normally. Whether it becomes the next stablecoin to be discontinued depends on the outcome of regulatory reviews.
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Starting from regulatory trends, industry pathways, and historical precedents, we outline the key factors behind the recent turbulence surrounding USDC and BUSD, and assess the compliance risks they may face. By presenting a timeline and interpreting policies, readers can clarify the regulatory red lines for stablecoins and evaluate whether USDC might become the next asset to have its issuance stopped. Continue reading for a complete perspective.
Timeline of Events
- February 10: Media outlet CoinDesk reported that the New York Department of Financial Services (NYDFS) is investigating Paxos, whose products Pax Dollar (USDP) and Binance USD (BUSD) could become subjects of the probe. A Paxos spokesperson did not respond.
- February 11: Bloomberg disclosed that PayPal has paused its stablecoin project, whose primary partner is Paxos, citing heightened regulatory scrutiny of cryptocurrency activities.
- February 13: Rumors surfaced that the SEC would file a lawsuit against Paxos, the issuer of BUSD, alleging that it issued unregistered securities; The Wall Street Journal reported that the SEC had issued a Wells Notice to Paxos Trust Co., accusing it of violating investor protection laws.
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Why Might a Stablecoin Be Treated as a Security?
- Definition: In the United States, money‑market mutual funds (MMMFs) are classified as securities. They are issued by companies and invest in commercial paper, certificates of deposit, Treasury bills, and similar assets, and they fall under the oversight of the SEC.
- Legal Basis: The determination of a security is not limited to the Howey test (investment contract). Even if a product does not promise a return, it may still be deemed a security if it exhibits investment‑like characteristics.
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Specific Requirements from NYDFS for BUSD
- Cease Issuance: The NYDFS ordered Paxos Trust Co. to stop issuing new BUSD, while redemption of existing BUSD tokens remains unaffected.
- CEO Statement: Changpeng Zhao (CZ) said that if BUSD is classified as a security, it would have a substantial impact on the crypto industry. Binance will continue to support BUSD, but it may no longer be listed as a primary trading pair. *(Note for U.S. residents: Binance.US should be used instead of the global Binance platform.)*
- Paxos’ Follow‑up Plan: The company confirmed that by February 2024 it can ensure the full redemption of all BUSD held by users. Holders will also be able to swap their BUSD for USDP, and the other two stablecoin products will continue to operate as usual.
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Next Stop: Circle’s USDC
- Regulatory Context: USDC is also under scrutiny by the NYDFS. If BUSD is halted because of a “security” classification, USDC could face a comparable review.
- Likelihood Assessment: At present there is no concrete evidence that USDC will be subject to the same cessation. Regulators appear to be focusing more on market share and the compliance procedures employed by the issuer.
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Summary
- BUSD has been ordered to pause issuance by the NYDFS, with the regulatory focus centered on whether it constitutes an unregistered security.
- USDC continues to operate without interruption; whether it becomes the next stablecoin to have its issuance stopped will depend on further findings from the relevant supervisory bodies.
*Please note that cryptocurrency gains may be taxable in your jurisdiction; consult a local tax professional for guidance.*
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⚠️ Risk Disclaimer: Crypto prices are highly volatile. This is not investment advice.
