Paxos Ceases Issuance of BUSD Tokens Amid Regulatory Crackdown in Crypto Industry
By Paxos, the leading regulated blockchain and tokenization infrastructure platform, has announced that it will cease issuance of new BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services (NYDFS). This move comes as part of the SEC’s current crackdown on stablecoins and follows its enforcement letter to Paxos, demanding the exchange stop minting Binance stablecoin BUSD because it may be a security.[0]
BUSD dollar reserves will be managed by Paxos Trust, a regulated institution supervised by the NYDFS and audited by one of the Big Four accounting firms.[1] This means all BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, and held in bankruptcy remote accounts.[1]
The New York State Department of Financial Services (NYDFS) directed Paxos to discontinue the issuance of BUSD tokens as a result of “various unresolved problems in connection with Paxos' management of its association with Binance through the release of BUSD tokens by Paxos.” Paxos vehemently denies the notion that BUSD is a security.[2]
This is the most recent step in a rising regulatory campaign to bring back control to the formerly unrestrained crypto industry.[3] The Securities and Exchange Commission (SEC) reached a settlement with the cryptocurrency exchange Kraken last week, due to claims that Kraken was conducting an unregistered offering and sale in association with its crypto staking platform.[3] Add to all this the SEC’s $30 million settlement with the U.S.-based crypto exchange Kraken around its staking product.[4]
Today, rumors circulated that the U.S. Securities and Exchange Commission had issued a Wells notice to Circle. These reports, however, remain unconfirmed. Circle Counters Rumors Of Wells Notice From The SEC, stating, “Circle has not received a Wells notice.”
PayPal is reportedly pausing its stablecoin project amid increasing regulatory scrutiny of the cryptocurrency sector.[4] Binance chief executive officer Changpeng Zhao said the cryptocurrency industry may move away from dollar-linked stablecoins and even revisit algorithmic equivalents in the wake of a US regulatory crackdown.[5]
The security of its customers' assets has always been of the utmost importance to Paxos.[1] Paxos will continue to fully back BUSD and provide redemption services to its customers up until February 2024.[6]
0. “Binance's forced USDC conversion, insufficient reserves killed BUSD” Kitco NEWS, 14 Feb. 2023, https://www.kitco.com/news/2023-02-14/Binance-s-forced-USDC-conversion-insufficient-reserves-led-to-the-death-of-BUSD.html
1. “Paxos Will Halt Minting New BUSD Tokens” PR Newswire, 13 Feb. 2023, https://www.prnewswire.com/news-releases/paxos-will-halt-minting-new-busd-tokens-301744964.html
2. “Tether market cap nears $70B as SEC crypto crackdown hurts stablecoin rivals” Cointelegraph, 16 Feb. 2023, https://cointelegraph.com/news/tether-market-cap-nears-70b-as-sec-crypto-crackdown-hurts-stablecoin-rivals
3. “Crypto firm Paxos to face SEC charges, ordered to stop minting Binance stablecoin” CNBC, 13 Feb. 2023, https://www.cnbc.com/2023/02/13/paxos-ordered-to-cease-minting-binance-stablecoin-by-new-york-regulator.html
4. “PayPal Pauses Stablecoin Project Amid Paxos Regulatory Scrutiny” PYMNTS.com, 12 Feb. 2023, https://www.pymnts.com/cryptocurrency/2023/paypal-puts-stablecoin-on-hold-amid-closer-regulatory-scrutiny
5. “Binance CEO CZ Says Algorithmic Stablecoins May Make a Comeback” Bloomberg, 14 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-14/binance-s-cz-says-algo-stablecoins-may-make-a-comeback-after-crackdown
6. “Binance coin slumps as Paxos ordered to stop issuing dollar-based token” MarketWatch, 13 Feb. 2023, https://www.marketwatch.com/story/binance-coin-slumps-as-paxos-ordered-to-stop-issuing-dollar-based-token-241e0aa7
