Blockchain platform Paxos announced this week it will stop issuing the Binance-branded stablecoin BUSD from February 21st. BUSD is the third-largest stablecoin by market cap.
The New York Department of Financial Services (NYDFS) said it had ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved problems related to Paxos’ oversight of its relationship with Binance in regard to these stablecoins. Paxos notified customers of its intent to end its relationship with Binance for BUSD.
The DFS said it was “monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols”.
“The SEC’s ruling that Binance’s flagship stablecoin BUSD is a security, and its subsequent action against its issuer Paxos, doesn’t make any sense whatsoever,” said one industry insider. “The firm has re-asserted that it is always backed 1:1 with U.S. dollar-denominated reserves, is fully segregated, and is held in bankruptcy remote accounts. Paxos also stated that it is only BUSD that the SEC has called into question – no other part of its business, adding it is prepared to litigate to defend itself. Nonetheless, for now it has ceased minting new BUSD.”
Paxos has “categorically disagreed” with the SEC that BUSD should be classed as a security.
“While the latest news of the SEC’s clampdown on Kraken and Paxos seems like a dampener, it doesn’t spell the end for crypto. In fact, it’s ultimately good news for the industry,” said Tim Frost, CEO of Yield App. “Paxos’ decision to stop minting BUSD does raise questions over whether other stablecoins that play a large role in the DeFi space will follow suit. That said, the long-term goal of regulation has always been to lay down the framework so that the crypto industry has the appropriate support to grow.”
The SEC’s move against Paxos follows a crackdown last week on crypto exchange Kraken, which was charged with failing to register the offer and sale of a crypto asset staking-as-a-service program.