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The coolest thing about torrenting site ThePirateBay is that it really does operate like a pirate ship. When one jurisdiction forces it offline, it pops back up under a different domain.

At least in one point in time, ThePirateBay itself didnt own any actual servers. Its operators instead chose to spread the sites functionality across 21 virtual machines hosted around the world by various commercial cloud providers.

If one of the hosts pulled out, those virtual machines could be easily deployed to a different provider. More importantly, though, it meant there were no physical servers for police to seize.

And besides, the virtual server structure meant the actual cloud hosts keeping ThePirateBay online were unaware they were even hosting the torrenting portal further insulating it against police.

Binance has operated under similar mystique. For the longest time, the company had claimed to have no headquarters, something new CEO Richard Teng walked back after taking over from founder and CEO Changpeng Zhao, whos currently serving a four-month prison sentence in California.

Like ThePirateBay, Binance bounced between jurisdictions for years, from China to Japan and Malta, before all three eventually pushed the exchange to mosey on somewhere else. Dubai is currently tipped as the next potential destination to dock, although there hasnt yet been any official announcement.

All this might explain why the SEC was so eager to cut Binance off from its primary stablecoin provider, the New York-headquartered Paxos, by threatening to take it to court to prove that BUSD was an unregistered security.

And that really worked: BUSD was the seventh largest cryptocurrency by market cap, worth $16.1 billion, before the SEC sent its Wells notice to Paxos in February 2023. Paxos stopped minting new tokens and over the next month, BUSD holders redeemed about half the supply. By January this year, there was only $100 million in circulation.

But while the US has seemingly thrown anything that might stick at Binance and Zhao, there appears to have been little impact on Binance user activity.

After collating the exchanges monthly proof of reserves disclosures, its clear that Binance hasnt skipped a beat, at least in terms of user capital on the platform.

Binance disclosed $115 billion in user funds at the start of July, up from $61 billion one year ago, and $45.6 billion when reports first surfaced of a years-long DOJ investigation in December 2022.

Other stablecoins including TrueUSD, USDT and FDUSD plugged the gap left after Paxos wound down BUSD, with the latter two headquartered outside the US. TrueUSD meanwhile fell out of favor, leading to a number of delistings earlier this year.

In any case, as Zhao waits out the rest of his sentence, the makeup of user funds on the platform is morphing, with the data indicating that the general consensus is to hold.

Bitcoin made up 18% of user funds in December 2022 now its over one-third. Similarly, BNB went from 14% to 20%, while ETH has stayed largely unchanged at about 14%, presumably on account of lackluster price growth compared to bitcoin and BNB.

The real tell is that only one-fifth of all user funds on the platform are currently stablecoins $24.4 billion down from more than half before Zhaos troubles really began. That means 80% of Binance user funds are held in non-dollar-pegged crypto assets.

Clearly, users are confident after the SEC and DOJs actions, not only that everything at Binance is above board, but that prices will rise from here.

David Canellis

Paxos is getting off scot-free after the SEC said it wouldnt pursue legal action against the company.

Lets back up for a second. The SEC issued Paxos a Wells notice last February. This came, obviously, before the SECs case against Binance in June.

I mention this because the SEC, in its complaint against Binance, alleged that BUSD was a security.

Thereve been some interesting developments in that case as well.

Last month, Judge Amy Berman Jackson the judge overseeing the Binance case ruled against a motion to dismiss filed by Binance and its US entities. However, there were a few curveballs hidden in her ruling.

Jackson wrote that the SEC didnt plausibly allege that BUSD was offered and sold as an investment contract.

The SEC makes the vague assertion that Binance used at least a portion of those returns to enable and promote the Binance ecosystem, which it says gave BUSD its potential profit, but it does not explicitly link the value of the token which was tied to the US dollar to the success of the platform, she said.

The SEC, at the hearing on the motion to dismiss, also tried to argue that it wasnt claiming BUSD by itself was a security but rather that it was sold as a package that promoted a profit-making program.

Judge Jackson, in denying the charge regarding BUSD sales, clearly decided that there wasnt enough to support the claims.

Unfortunately, the BUSD of it all is a bit of a moot point, given that Paxos quickly shut down its Binance partnership and stopped issuing the stablecoin in late February of last year.

But theres no doubt the SEC dropping the investigation is a win for Paxos.

Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified, the company said in a statement.

Does this mean that the SEC is potentially abandoning the ability to label stablecoins as a security?

The SECs decision to not bring an enforcement action against Paxos signals that it may consider that USD-backed stablecoins are not securities. If the question of whether stablecoins are securities is definitively answered, the SEC would provide a necessary degree of regulatory certainty to this asset class, said David Oliwenstein, partner at Pillsbury Law.

But others say its still unclear. Right now, theres too little information to read deep into that scenario confidently.

The declination letter is a significant victory for Paxos and what should be viewed as encouraging to the industry, even though it doesnt establish with any certainty that any specific type of stablecoin is or is not a security, Andrew Hinkes, partner at K&L Gates, said.

If you wanted to look on the positive side, then one might even think the SEC was somehow being thoughtful in its approach to regulating the industry. Or maybe its just acknowledging that BUSD is DOA at this point.

Either way, its Friday.

Katherine Ross

Taking a page from the Gensler playbook?

That was the impression I couldnt quite shake whilst following Rostin Behnams testimony yesterday before Congress.

According to Fox Business Eleanor Terrett, the CFTC chief reportedly said that 70-to-80% of the crypto market comprises non-securities. A bold statement, and suggestive of the idea that theyre commodities instead and thus under the agencys purview. Behnam might also be signaling that the CFTC is basing this reasoning on market capitalization, with BTC and ETH comprising the bulk of the pie.

Sound familiar? That kind of expansive terrain-charting is reminiscent of Genslers frequent citation that most of the crypto market consists of, well, securities a declaration that would make it largely the SECs beat instead.

Its certainly curious of Behnam to make such statements, especially as if some Congress has its way the two agencies will be required to join forces in some areas on crypto oversight.

Perhaps the jockeying for position, and money, has already begun.

Michael McSweeney

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Empire Newsletter: What the SEC dropping its Paxos probe really means - Blockworks