The SEC has a stablecoin firm in its sights — and it could shake up the whole $137 billion market

The U.S. Securities and Exchange Commission could be gearing up to take action against Paxos, a company that issues a type of cryptocurrency called stablecoin.

The move will have major implications for the $137 billion market, experts told CNBC.

Stablecoins are a type of cryptocurrency designed to mirror real-world assets such as the U.S. dollar.

These stablecoins are often backed by real assets such as bonds or cash in reserve. They have become the backbone of the crypto market as they allow people to trade in and out of different coins quickly without having to convert in and out of fiat currency.

Paxos issued a digital currency called Binance USD or BUSD. It is a stablecoin associated with Binance, one of the world’s biggest cryptocurrency exchanges. BUSD is pegged one-to-one with the U.S. dollar.

Last week, New York state’s financial regulator ordered Paxos to stop issuing BUSD.

Separately, Paxos said that the SEC had issued it a notice that the regulator is considering recommending an action alleging that BUSD is a security. Paxos said the notice suggests Paxos should have registered the offering of BUSD under federal securities laws. 

The SEC hasn’t started official action. But the agency’s actions are being watched closely because if it starts an official procedure, it could have huge implications for all stablecoins including tether and USDC, the two largest which combined are worth $110 billion.

“If the SEC charges Paxos, any other issuer of stablecoins should register or prepare for a court fight with the SEC,” Renato Mariotti, a partner at law firm BCLP, told CNBC.

While the SEC has not yet come out with specific charges, the notice to Paxos focuses on the question of whether stablecoins are securities or not.

For its part, Paxos said it “categorically disagrees with the SEC staff because BUSD is…