The New York Department of Financial Services (NYDFS) has directed Paxos, a regulated institution overseen by the NYDFS and audited by a top-four accounting firm, to cease issuance of new BUSD tokens as of February 21, 2023. This action does not impact Paxos' ability to continue serving new or existing customers, and their commitment to grow their staff or fund their business objectives will remain unchanged. All BUSD tokens issued by Paxos Trust will still be backed 1:1 with US dollar-denominated reserves and held in bankruptcy remote accounts. Paxos will continue managing redemptions for the product until February 2024.
PayPal has reportedly paused work on its forthcoming stablecoin offering due to Paxos being investigated by the NYDFS. Stablecoins, such as BUSD, are digital currencies that are designed to hold steady, usually by pegging its value to an underlying asset, such as the US dollar.
The SEC issued a letter to Paxos known as a Wells notice, which the agency uses to inform companies and individuals of a possible enforcement action. The Wall Street Journal reported Monday that the SEC would argue that Paxos' BUSD product was a security, an approach it has employed with other crypto firms.
In response to the SEC’s investigation, Binance minted nearly $50 million worth of TrueUSD (TUSD). TUSD is a stablecoin pegged to the US dollar, launched in 2018 and listed on Binance in May of that year. Binance CEO Changpeng Zhao (CZ) warned of “profound impacts” on the crypto industry if BUSD is ruled as a security.
On-chain data shows that Alameda and Justin Sun are the two largest minters of TUSD, with Alameda minting a total of 1.64B TUSD and Justin Sun minting a total of 889M TUSD in history.
Binance temporarily suspended US dollar transfers as part of an escalating regulatory effort to rein in the once free-wheeling crypto industry. The SEC has also settled with crypto exchange Kraken over allegations of unregistered offering and sale, in connection with Kraken's crypto staking platform.
Customers of Paxos both old and new can redeem their funds in US dollars or exchange their BUSD tokens for Pax Dollar (USDP), a US dollar-backed stablecoin regulated by the Paxos Trust.
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2. “Stablecoin issuer Paxos ordered to halt creation for Binance USD” AOL, 13 Feb. 2023, https://www.aol.com/stablecoin-issuer-paxos-ordered-halt-134410690.html
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