New York Regulator Orders Paxos to Suspend Binance Stablecoin Issuance
New York Regulator Orders Paxos to Suspend Binance Stablecoin Issuance

New York Regulator Orders Paxos to Suspend Binance Stablecoin Issuance

Cryptocurrency 13 February, 2023 10:16 AM

Cryptocurrency firm Paxos will cease issuing new Binance USD, or BUSD, stablecoins under the direction of New York state’s financial regulator, Binance founder Changpeng Zhao said Monday. Paxos’ own stablecoin was not impacted.

The New York State Department of Financial Services issued the order “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance,” the regulator said Monday in a consumer alert.

“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services,” Zhao said on Twitter. BUSD is Binance’s dollar-pegged stablecoin, with each BUSD hypothetically valued at one dollar, and it is used on Binance to trade cryptocurrencies, including ether and bitcoin.

"Effective February 21, Paxos will cease issuing new BUSD tokens and is working closely with them in accordance with the guidelines of the New York City Department of Financial Services," Paxos said in a statement, adding that it would "end its relationship with Binance." For BUSD branded stablecoins.”

Binance did not immediately respond to a request for comment.

Paxos BUSD is based on the Ethereum blockchain and backed by US Treasuries and Treasury Bond Redemption Agreements.

The Paxos BUSD product is linked to, but segregated from, its own Binance BUSD linked to Binance.

Self-issued Binance BUSD, not directly regulated by NYDFS, is independently circulated and minted on cryptocurrency exchanges on blockchains off Ethereum. This means that Binance can take one Paxos-issued BUSD, create a similar BUSD on another blockchain (e.g. Binance's own blockchain), and freeze that Paxos-issued BUSD.

“The Department has not accepted Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos,” NYDFS said.

The move is the latest example of an intensified effort by regulators to rein in the once burgeoning cryptocurrency industry. Last week, the Securities and Exchange Commission settled claims by cryptocurrency exchange Kraken of unregistered offers and sales in relation to its Kraken cryptocurrency staking platform.

"This action does not affect our ability to continue serving new or existing customers, our continued efforts to increase our workforce or fund our business objectives," Paxos said in a statement.

In 2014, New York became the first state to introduce a license for crypto-related companies. Paxos is one of more than 24 companies that have been granted BitLicenses.

In January, NYDFS took action against another regulated firm, Coinbase.

Two other New York State regulators, Genesis Global Trading and Gemini Cryptocurrency Exchange, have been indicted by the Securities and Exchange Commission for engaging in an unregistered offering and sale of securities in connection with a joint cryptocurrency lending program.