### The Securities and Exchange Commission (SEC) is continuing on with their agenda of regulation by enforcement and have now turned their attention to stablecoins.

According to the Securities and Exchange Commission (SEC), some stablecoins, including those developed by Paxos, may be regarded as securities and as a result, be governed by federal and state securities laws.


 <blockquote className="twitter-tweet">1/ This morning, Paxos announced it will halt minting new <a href="https://twitter.com/hashtag/BUSD?src=hash&ref_src=twsrc%5Etfw">#BUSD</a> tokens effective February 21. Read the full press release from Paxos here: <a href="https://t.co/jXZY1ak8DR">https://t.co/jXZY1ak8DR</a>— Paxos (@PaxosGlobal) <a href="https://twitter.com/PaxosGlobal/status/1625091554951004161?ref_src=twsrc%5Etfw">February 13, 2023</a></blockquote>



The SEC argued that the company's stablecoins are effectively securities because they are issued and traded in a manner that is similar to traditional securities. The agency claims that Paxos may have sold its stablecoins to the public without proper registration and disclosure, and that the company may have engaged in unregistered broker-dealer activities.



The SEC uses the Howey Test, a legal standard, to decide whether particular transactions meet the criteria for investment contracts and, consequently, securities. The examination comprises four parts:



Investment of money.
A common enterprise.
Expectation of profit.
Derived from the efforts of others.


The investment will probably be regarded as a security and be governed by federal securities laws if all four requirements are satisfied.



Stablecoins are created with a steady value in mind and typically have price stability. As a result, the third classification does not fulfill the requirements for becoming a security.



 <blockquote className="twitter-tweet">The SEC has labelled BUSD as an “unregistered security”, and is suing its issuer, Paxos. But how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria. No one has ever had “the expectation of profit” when buying <a href="https://twitter.com/search?q=%24BUSD&src=ctag&ref_src=twsrc%5Etfw">$BUSD</a>. <a href="https://t.co/QXOlDUyvc3">pic.twitter.com/QXOlDUyvc3</a>— Miles Deutscher (@milesdeutscher) <a href="https://twitter.com/milesdeutscher/status/1624953792872718336?ref_src=twsrc%5Etfw">February 13, 2023</a></blockquote>


However, the SEC might spin things around and may still consider stablecoins to be securities if they meet the other prongs of the Howey Test. For example, if an issuer of a stablecoin is promoting it as an investment opportunity and investors are pooling their money together to purchase the stablecoin with the expectation of profiting from the efforts of others, the stablecoin could potentially be classified as a security. 



The outcome of the lawsuit against Paxos will have important implications for the wider cryptocurrency and stablecoin industry, as it will set a precedent for how stablecoins are classified and regulated in the future. The case is ongoing and the final determination of whether stablecoins are considered securities or not may have a significant impact on the future development and use of cryptocurrencies.

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