On Monday, the CEO of Binance, Changpeng Zhao, said cryptocurrency firm Paxos will terminate issuing new Binance USD, or BUSD (a fiat-backed stablecoin accommodated by Binance and Paxos), or stablecoins under the guidance of New York state’s fiscal regulator.
However, Paxos’ own stablecoin was not affected, but the firm did confirm that it had been notified by the Securities and Exchange Commission (SEC) of potential charges linked with its BUSD commodity.
Furthermore, a stablecoin is a cryptocurrency that attempts to maintain a more stable price by tying its value to an underlying asset such as gold or even US dollars.
The latest move was made in an escalating regulatory effort to curb the once free-wheeling crypto assiduity. However, in the previous week, the Securities and Exchange Commission settled a deal with a popular cryptocurrency exchange, Kraken, over allegations of unregistered offering and sale, which were linked with Kraken’s crypto staking platform.
Further, the New York State Department of Financial Services issued an order “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance,” the regulator said in a consumer alert on Monday.
“We were informed by Paxos that they have been directed to cease minting new BUSD [Binance’s stablecoin] by the New York Department of Financial Services,” Zhao stated in his tweet.
“Effective February 21, Paxos will cease issuance of new BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services,” Paxos mentioned in a statement, and reckoning that it might “end its relationship with Binance for the branded stablecoin BUSD.”
The potential SEC charges, on the other hand, came in the form of a “Wells notice,” which informs other crypto firms of the results of an investigation pending charges.Besides, The Wall Street Journal reported on Monday that the SEC would argue that Paxos’ BUSD commodity was a security, an approach that has been employed with other crypto firms, which include Kraken, Gemini, and Genesis.
Later, in an interview, a Paxos spokesperson told CNBC that “Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws.”
“This SEC Wells notice pertains only to BUSD. To be clear, there are unequivocally no other allegations against Paxos,” he added.
The spokesperson also stated, “We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.”
Although Binance did not respond to requests for comment immediately.
Paxos’ BUSD product is built on the Ethereum blockchain and backed one-on-one by the U.S. Treasury and Treasury Reverse Repurchase Agreements, with Paxos reporting around $16 billion in holdings as of January 31. Paxos’ BUSD product is generally related to but also different from Binance’s self-issued, Binance-secured BUSD.
Binance’s self-issued BUSD coin, which is not directly regulated by the New York State Department of Financial Services, is unconventionally wrapped and issued by the crypto exchange on blockchains over Ethereum. In simple words, Binance is eligible to take a single Paxos-issued BUSD, construct an analogous BUSD on another blockchain (like Binance’s own blockchain), and freeze a signifying Paxos-issued BUSD.
“The Department has not authorised Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos,” NYDFS stated.
“This action does not impact our ability to continue serving new or existing customers, our continued dedication to grow our staff, or fund our business objectives,” Paxos said in a statement.
It is said that earlier in 2014, New York became the first state to establish licensing for crypto-related companies, in which Paxos is one of over two dozen organisations that have safeguarded a BitLicense. In January, the NYDFS took action against Coinbase, a well-known, regulated company.
Two other New York-state-regulated companies, Genesis Global Trading and crypto exchange Gemini, have been cited by the Securities and Exchange Commission for engaging in the unregistered offer and sale of securities linked with a joint crypto lending program.
- Published By Team Genuine Reporter