No more Binance USD (BUSD) as stablecoin issuer ordered to stop
The New York Department of Financial Services (NYDFS) has ordered stablecoin issuer, Paxos, to stop issuing Binance-branded stablecoin BUSD, the world’s third largest stablecoin.
New York regulators directed Paxos Trust Co., which has its own stablecoin, Pax dollar (USDP), to stop creating more of BUSD dollar-pegged tokens. To assure holders, Binance said in a statement that Paxos will continue to manage redemptions of BUSDs. The Wall Street Journal first reported the news.
“Paxos has informed us that they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS). BUSD is a stablecoin wholly owned and managed by Paxos. As a result, BUSD market cap will only decrease over time. Paxos will continue to service the product, manage redemptions, and will follow-up with additional information as required,” the statement reads.
The move comes a few days after reports surfaced that the NYDFS is investigating Paxos, possibly over whether it was meeting rules around custody of client crypto assets.
The SEC also plans to sue Paxos Trust for violating investor protection rules in relation to Binance stablecoin. The issuer was already told of the planned enforcement action as the regulator claims that Binance USD is an unregistered security.
Per a Bloomberg report, the full scope of the investigation is unclear. But the US regulators have been questioning crypto firms over their practices around handling clients’ digital assets. The probe has gathered pace in the wake of the collapse of Sam Bankman-Fried’s crypto empire.
An NYDFS spokesperson declined to comment on ongoing investigations but told CoinTelegraph that “The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.”
After the collapse of the Terra algorithmic stablecoin in May, which wiped billions off the broader cryptocurrency market, NYDFS refocused attention on the $150 billion stablecoin industry. Since then, regulators have been concerned that stablecoins without sufficient reserve-backing are prone to bank runs.
Paxos is a New York-based exchange and stablecoin issuer, whose status as a licensed financial services company in the US allows it to offer different products, such as crypto trading and settlement, and custody services. Further, the firm can issue tokenized securities and provides its customers with access the traditional banking system.
The unique position has enabled Paxos to sign big enterprise clients, such as Interactive Brokers, Revolut, Crédit Suisse, Société Générale and StoneX. It has also joined forces with the world’s most influential crypto exchange, Binance, to secure the NY regulator’s approval to launch a USD-backed stablecoin.