New York’s chief financial regulator has ordered Paxos Trust Company, the crypto firm behind the stablecoin of major crypto exchange Binance, to cease issuing new Binance USD (BUSD). Binance CEO Changpeng Zhao announced this in a tweet on Feb. 13.
New York-based Paxos issues and redeems the Binance USD (BUSD) stablecoin, the third largest with over $16B market cap. However, the New York Department of Financial Services (NYDFS) regulates both,.
BUSD is Binance’s dollar-pegged stablecoin, designed to be worth one dollar, and is used on Binance to trade cryptocurrencies, including bitcoin and ether. In 2019, Paxos launched this dollar-pegged exchange-branded stablecoin in collaboration with Binance.
The NYDFS issued the order because of many outstanding issues related to the monitoring of Paxos’ relationship with Binance, the regulator said in a letter. Meanwhile, the agency’s statement did not clarify what these issues were.
“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS).”
2/ We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS).
Paxos is regulated by NYDFS.
BUSD is a stablecoin wholly owned and managed by Paxos.
— CZ 🔶 Binance (@cz_binance) February 13, 2023
He said the BUSD market cap would only decrease over time. Additionally, Paxos guaranteed Binance that its bank reserves fully cover the funds. Paxos stated that it will halt the issuance of new BUSD tokens from February 21 and will continue to support and payout existing BUSD until at least February 2024.
Paxos also said:
It would “end its relationship with Binance for the branded stablecoin BUSD.”
This move will not affect our ability to continue serving existing or new crypto customers or our continued commitment to growing our business goals, staff, or funding.
NYDFS Ordered Following The SEC’s Wells Notice
According to a Wall Street Journal on Feb 12. the report, the US Securities and Exchange Commission (SEC) issued a letter to Paxos, known as a Wells Notice, alleging that it violated protection laws regarding the BUSD. As well as, BUSD is unregistered security, the notice said.
Newsflash: SEC issues Wells Notice to Paxos informing Paxos of possible enforcement action. In my 18 years at SEC enforcement division, I can’t recall a time when I sent a Wells Notice and an enforcement action did not follow. SEC’s crypto-sweep continues! https://t.co/kItzSEcCUF
— John Reed Stark (@JohnReedStark) February 13, 2023
A Wells notice is a communication that agencies issue to inform companies or individuals of detected violations during investigations.
After this notice, the accused has 30 days to file a legal brief known as a Wells submission, the sources said. The response must include why the defendants should not be charged. Zhao noted that BUSD is wholly issued, managed, and owned by Paxos.
SEC Chairman Gary Gensler said some crypto firms have mysterious business strategies.
“If this field has any chance of survival and success, it’s time-tested rules and laws to protect the investing public. Don’t have your hand in the customer’s pocket, using their funds for your own platform.”
In a tweet on February 12, FOX Business journalist Eleanor Terrett cautioned that SEC and other regulators could “blitz crypto.” Moreover, She noted that additional Wells notices are expected to be issued in the coming weeks.