Yahya 
Should stablecoins be paid to creditors of the failed cryptocurrency exchange FTX, the United States Securities and Exchange Commission (SEC) issues a warning on possible contesting of such reimbursements. This warning was detailed in an August 30 petition to the United States Bankruptcy Court in Delaware as the SEC expressed concerns over the likely use of US-dollar pegged crypto assets for creditor repayments.
Following FTX’s November 2022 collapse, the exchange has sought many approaches to pay its creditors, including a now-abandoned plan to relaunch the market. The most current liquidation plan from FTX involves settling creditor claims dependent on the US dollar value of assets at the time of bankruptcy, even if payments will be made either in cash or stablecoins.
The SEC maintained the right to object to such transactions even if it acknowledged that payments made using stablecoins may not be exactly illegal. “The SEC is not opining as to the legality, under which the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets,” the document underlined under the federal securities laws.
The SEC also noted that there was no “distribution agent” in FTX’s return plan overseeing money delivery to creditors.
The position of the SEC has angered the crypto community. Chief legal officer at Coinbase Paul Grewal and head of research for Galaxy Digital Alex Thorn both lambasted the regulator for what they saw to be overreach. Though it dismissed its case against Binance USD (BUSD) creator Paxos in July, Thorn noted that the SEC looked to be keeping the option open to classify dollar-backed stablecoins as “crypto asset securities”.
“This is the height of jurisdictional overreach,” Thorn said in a September 1 X post, arguing that the SEC’s strategy was too aggressive. Reflecting these thoughts, Grewal asked, “Why offer clarity to the market when threats and aspersions will do? Better is what markets, consumers, and investors are entitled to. much better.
As the situation unfolds, the warning issued by the SEC highlights the ongoing confrontation between regulators and the crypto industry, particularly on the categorization and governance of stablecoins.
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