The U.S. Securities and Exchange Commission (SEC) wants to sue Paxos for issuing and listing stablecoin Binance USD (BUSD) to the benefit of its top-rival stablecoin Tether (USDT), whose market capitalization has risen to multi-month highs. 

BUSD market cap drops by $2 billion

The SEC asserts that BUSD, a U.S. dollar-backed stablecoin, is a security, noting that Paxos has violated investor protection laws by white-labeling it.

Related: Paxos ‘categorically disagrees’ with the SEC that BUSD is a security

Since Feb. 13 when the news broke, the BUSD market cap has lost roughly $2 billion, down to around $14 billion as of Feb. 16 — the lowest since January 2022. 

As Cointelegraph reported, Binance has seen its withdrawals and BUSD redemptions surge post-Paxos crackdown.

USD Coin market cap downtrend continues

At the same time, USD Coin (USDC), the second-largest stablecoin by market capitalization, has also witnessed capital outflows in reaction to the SEC crackdown news. Its supply decreased from $41.29 billion on Feb. 12 to as low as $40.99 billion on Feb. 14.

However, this figure rebounded to $41.30 billion on Feb. 15 after Circle clarified that it had not received any lawsuit threat from the SEC.

.@circle has not received a Wells notice. https://t.co/lE74zHVLka

— Dante Disparte (@ddisparte) February 14, 2023

Despite recent inflows, however, USDC’s market cap remains in a general downtrend since its June 2022 peak of $56 billion — a 25% decline over the past eight months.

Tether dominance jumps, market cap rises over $69 billion

The regulatory crackdown on U.S.-based stablecoin firms has been a boon for top-stablecoin Tether, whose market cap has jumped over $69 billion.

69B

— Paolo Ardoino (@paoloardoino) February 14, 2023

Nearly $890 million of inflows since Feb. 12 has pushed Tether’s market dominance to 51.25% as of Feb. 15, data shows.

The jump likely suggests that investors were spooked by the crackdown on BUSD and sought safety in Tether USDT. Tether Limited Inc. is owned by Hong-Kong-based iFinex Inc., which also owns the Bitfinex cryptocurrency exchange.

Related: USDT vs. USDC vs. BUSD: What are the similarities and differences?

Investigators have long attempted to uncover the accounting behind Tether to prove that its circulating USDT supply is not 100% backed by the dollar (and even a mix of other cryptocurrencies, Treasury bills, money market funds, and other assets) as it claims.

Tether has repeatedly denied the accusations and provides regular assurance opinions every quarter signed by third-party accounting companies.

The latest report from Dec. 31, 2022 states that consolidated assets amounted to at least $67 billion, exceeding consolidated liabilities by at least $960 million.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.