NYDFS Shuts Down Binance USD Issuance, Questions Unresolved Issues

Paxos Ordered to Stop Issuing Stablecoin Backed by Cash and US Bonds, as Binance CEO Points to Potential Industry Implications

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New York’s financial regulator has ordered Paxos, the company behind the stablecoin of the major exchange Binance, to stop issuing the token, Paxos and the regulator announced in separate announcements today.

The Binance USD (BUSD) stablecoin, one of the world’s largest, is issued and redeemed by New York-based Paxos Trust Company, which is regulated by the New York Department of Financial Services (NYDFS).

The token, which is designed to hold a fixed value and is widely used by cryptocurrency traders on Binance, is backed by stocks of regular cash and US bonds, according to the Paxos website.

The NYDFS said in a statement that it ordered Paxos to stop “cutting” BUSD “as a result of several unresolved issues related to its oversight of its relationship with Binance through the BUSD issued by Paxos.” The regulator’s statement did not provide details of what those issues were.

Binance CEO Changpeng Zhao wrote in a series of tweets earlier on Monday that the regulator’s decision meant that “the market capitalization of the BUSD market will decrease over time,” adding that Paxos assured Binance that the funds were fully covered by Paxos’ bank reserves.

BUSD is “wholly owned and managed by Paxos,” Zhao said.

Binance USD is the seventh largest cryptocurrency, with more than $16 billion in circulation, according to market monitoring firm CoinGecko. Zhao said Binance will “continue to support BUSD for the foreseeable future” and that he sees users “moving to other stablecoins over time.”

Paxos said in a statement that it will stop issuing new BUSD from February 21 and will continue to support and redeem pre-existing BUSD until “at least February 2024”. NYDFS noted that it is “closely monitoring Paxos to verify that the company can conduct redemptions in a regular manner.”

The NYDFS move comes amid a broader crackdown on cryptocurrencies and Binance by US regulators. The Department of Justice is investigating Binance for possible violations of money laundering laws, Reuters previously reported. Binance has said it regularly works with regulatory agencies to address questions they may have.

The WSJ, citing unnamed sources, reported on Sunday that the US Securities and Exchange Commission (SEC) has informed Paxos that it intends to sue the company, claiming that Binance USD is an unregistered security. The SEC did not immediately respond to a request for comment.

“If the BUSD is ruled as a ‘security’ in the courts, this will have profound implications for how the cryptocurrency industry will (or will not) develop in the jurisdictions where it is ruled as such,” Zhao wrote on Twitter. He said he had no information about the lawsuit.

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