New York regulators have ordered cryptocurrency firm Paxos to stop issuing Binance USD (BUSD). third largest stablecoin based on market cap and pegged to the US dollar — out of concern that it cannot “safely” issue the token, as previously reported by Reuters And The Wall Street Journal.
This is because Paxos is facing a potential lawsuit from the Securities and Exchange Commission (SEC) over the BUSD token. Sources close to the situation narrate The Wall Street Journal that the agency plans to sue the company “for violating investor protection laws.” The SEC reportedly has a Wells notice to Paxos – or a letter used by the regulator to notify a company or individual of potential violations and enforcement actions.
In an announcement posted on the New York Department of Financial Services (NYDFS) website on Monday, the agency says the order is a result of “several unresolved issues related to Paxos’ oversight of its relationship with Binance through the Paxos-issued BUSD .”
Paxos partnered with Binance in 2019 to launch the token, which received approval from the NYDFS at the time. However, as Binance CEO Changpeng “CZ” Zhao repeats on Twitterthe exchange has licensed the Binance brand to Paxos, and BUSD is “wholly owned and operated by Paxos.”
Paxos has confirmed that it is complying with NYDFS order in a press release, noting that while it will stop issuing new BUSD tokens as of February 21, the stablecoin will remain “fully supported” and “swappable” by Paxos until “at least” February 2024. Meanwhile, new and existing Paxos customers will be able to use their BUSD tokens to Pax Dollar (USDP), another dollar-backed stablecoin issued by Paxos. Binance will also support BUSD “for the foreseeable future”. according to CZalthough he expects the market cap to “decrease over time”.
According to to data Bloomberg obtained from CryptoQuant and Coinglass, stablecoin withdrawals on Binance grew to around $183.8 million after 8 a.m. ET on Monday, while withdrawals across the entire exchange exploded in the past 24 hours to $462 million. In addition, an analysis of DefiLlama, viewed by Bloomberg, indicates that BUSD is about 19 percent of Binance reservesor the assets that crypto exchanges use to cover withdrawals and other liabilities.
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