NYDFS Halts BUSD Issuance by Paxos, Binance’s Stablecoin Issuer
It is reported that Circle reported to the New York Financial Services Department (NYDFS) in the fall of 2022, complaining that the blockchain data showed that…
It is reported that Circle reported to the New York Financial Services Department (NYDFS) in the fall of 2022, complaining that the blockchain data showed that Binance did not have enough reserves to support its BUSD tokens issued through Paxos. NYDFS spokesman told Reuters that Paxos did not manage BUSD in a “safe and reliable” way, so “it violated its obligation to conduct customized regular risk assessment and due diligence updates for the BUSD customers issued by Binance and Paxos” to prevent bad actors from using the platform. ” NYDFS instructed Paxos to stop casting BUSD. Paxos agreed to stop casting new BUSD tokens, but said in a press release released on Monday that all its issued BUSD tokens were fully supported by reserves denominated in US dollars. It was also reported that Paxos denied the rumor that the United States Office of the Comptroller of the Currency (OCC), the federal banking regulator, might require Paxos to withdraw its application for a full banking license (Paxos received the OCC’s provisional banking license in 2021). (Bloomberg)
Foreign media: Circle reported to NYDFS that Binance did not have enough reserves to support its BUSD tokens
Interpretation of the news:
The New York Financial Services Department (NYDFS) has ordered Paxos, the issuer of Binance’s BUSD stablecoin, to stop issuing new tokens due to alleged reserve inadequacy. According to Circle, NYDFS was informed in the fall of 2022 that blockchain data indicated that Binance lacked sufficient reserves to support BUSD tokens issued via Paxos. NYDFS has accused Paxos of failing to conduct adequate and regular risk assessments and due diligence on its BUSD customers to prevent malicious actors from exploiting the platform. In response, Paxos has agreed to cease issuing new BUSD tokens while insisting that all existing BUSD tokens are backed by US dollar reserves.
The NYDFS action has raised concerns about Paxos’s banking license, which it obtained provisionally in 2021. Bloomberg reports that Paxos has denied rumors of pressure from the US Office of the Comptroller of the Currency (OCC) to withdraw its banking license application. It is unclear if the OCC has been involved in the NYDFS and Paxos BUSD situation.
This regulatory intervention is significant because stablecoins such as BUSD play a vital role in cryptocurrency ecosystems, particularly for traders who require stability in their portfolio’s value. It highlights the need for proper regulatory oversight to prevent risks such as fraud and lack of transparency while safeguarding consumers’ investments. Regulators in the US and globally are increasingly scrutinizing stablecoins, with some authorities such as China and India now seeking to ban their use entirely.
In conclusion, the NYDFS has halted the issuance of BUSD tokens by Paxos due to concerns over reserve adequacy, indicating the regulator’s resolve to ensure consumer protection and transparency in crypto markets. The event sheds further light on the need for stablecoins to adhere to regulatory frameworks, which are likely to evolve and expand in the future.
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