Regulatory scrutiny from the New York Department of Financial Services has led the largest issuer of regulated stablecoins, Paxos, to declare it will sever its connection with Binance and suspend the issuance of new Binance USD (BUSD) stablecoin tokens beginning on February 21. (NYDFS). New York’s Financial Services Department demanded that Paxos cease production of BUSD coins because of “many outstanding problems connected to Paxos’ management of its connection with Binance via Paxos-issued BUSD.”
Binance Users Are Withdrawing After The Paxos Crackdown
Binance, the largest cryptocurrency exchange in the world, has been in trouble with U.S. authorities before. Reuters reports that investigations into Binance’s adherence to U.S. anti-money laundering regulations began in 2018.
Coinmarketcap ranks BUSD as the seventh largest stablecoin with a market valuation, and its value remains stable against the US dollar. Binance stated in a November 2022 blog post that it licenses Paxos to create new BUSD tokens on the Ethereum network. The BUSD token, according to the article, has had its “approval by the New York Department of Financial Services,” and its reserves are kept only in accounts insured by the FDIC.
Paxos Trust issued BUSD tokens have been and will be backed 1:1 by US dollar-denominated reserves, fully segregated, and stored in bankruptcy distant accounts, the company said in a statement to investors.
Even Binance’s CEO, Changpeng Zhao, rushed to Twitter on Monday to convince customers that their BUSD holdings were secure. In addition, he verified that Paxos will still handle BUSD stablecoin redemptions.
Furthermore, the NYDFS has stated that it “is observing Paxos closely to ensure that the corporation can allow redemptions in an orderly way under improved, risk-based, compliance processes.”
In addition to the USDP stablecoin and the PAXG gold-backed cryptocurrency, Paxos also supported the BUSD cryptocurrency. Paxos has a prestigious board of advisors that includes former FDIC Chair Sheila Bair and has raised over $500 million from prominent investors such as PayPal Ventures.
