Paxos instructed to stop issuing Binance USD stablecoin – Ledger Insights
Paxos, the company that issues the tokenized Binance USD (BUSD) stablecoin, has been instructed to stop issuing the stablecoin by its regulator, according to Binance.
“Paxos has informed us that it has been instructed to stop minting new BUSD by the New York Department of Financial Services (NYDFS), BUSD is a stablecoin wholly owned and managed by Paxos,” Binance said in a statement. “As a result, the market value of BUSD will only decrease over time. Paxos will continue to service the product, manage redemptions and will follow up with additional information as needed.”
The Wall Street Journal and Bloomberg first reported the news.
Paxos is a regulated trust company with a conservative approach to managing the BUSD backing funds, the third largest stablecoin with a market capitalization of $16 billion. The reserve is held in the treasury and bank balance.
As we noted in an article on Friday, Paxos only issues the stablecoin on the Ethereum blockchain, but Binance issues pegged tokens on other blockchains.
NYDFS has been monitoring BUSD until now. In a statement from Paxos to Ledger Insights in January, Paxos told Ledger Insights, “The NYDFS must approve our BUSD operations, including the blockchains on which BUSD tokens can be listed. Today, BUSD is approved for issuance only on Ethereum.”
On Friday, Bloomberg reported that the NYDFS was investigating Paxos and the Wall Street Journal reported yesterday that Paxos had received a Wells notice warning of impending legal action from the Securities and Exchange Commission (SEC). The justification concerns a breach of laws on investor protection.
SEC Chairman Gary Gensler has previously stated that “stablecoins can also be securities and investment companies.”
The irony is that the more conservative stablecoin issuers are likely to be the easier targets because they want to be compliant. In contrast, Tether, the largest stable coin and also seen as the riskiest, is largely offshore.
Paxos has always positioned itself as a compliant and institutional firm, as evidenced by its relationship with PayPal and major institutions such as Citadel Securities, Schwab and Fidelity supporting new institutional crypto exchange EXDM.
Circle issues the second largest stablecoin USDC. The assets are largely held in a money market fund managed by Blackrock, with custody held by BNY Mellon.
The big question is why BUSD is being targeted in the first place. One can only speculate. One possibility is that Paxos staff are not as heavy as Circles. Another relates to BUSD’s association with Binance in the eyes of consumers and regulators who want to get ahead of potential future risks.
