According to reports, Paxos told to stop issuing Binance USD
February 15, 2023 7:23 AM
Paxos, the issuer of the third-largest stablecoin by market cap, BUSD, has been forced to cease operations by a New York regulator.
New York's financial regulators have demanded that Paxos Trust, the business behind the dollar-backed stablecoin Binance USD (BUSD), halt production of the cryptocurrency.
Shortly after the United States Securities and Exchange Commission (SEC) issued a wells warning to Paxos, the New York regulator followed suit. The letter said that Binance USD was a security that hadn't been properly registered.
The NYDFS has requested that Paxos cease issuing new BUSD tokens. A Binance announcement clarified that Paxos will still handle product redemptions.
The Department is keeping a close eye on Paxos to ensure that it can implement more stringent, risk-based compliance rules for redemptions and yet do so in a timely manner. This was confirmed by the governing body in a statement posted to their website:
"Given the numerous unsolved difficulties about Paxos' supervision of its connection with Binance over Paxos-issued BUSD, DFS has ordered Paxos to discontinue minting Paxos-issued BUSD. As a result, Paxos informed its BUSD customers on February 13, 2023, that it would be severing ties with Binance."
With the crypto sector under increasing scrutiny, the latest regulatory action against the third largest stablecoin is not surprising. Kraken had to end its staking offering after the SEC ruled last week that such services violate securities legislation. Coinbase is joining the fray, arguing that its staking products do not fall under the category of securities.
In the cryptocurrency industry, the securities discussion has been front and center ever since the Securities and Exchange Commission (SEC) sued Ripple, the issuer of the XRP token. So far, no decision has been made in the matter. An investment in a business is termed a security if the investor expects a return on their money from the business's operations rather than from their own.
Stablecoins are a common entry point for newcomers to the cryptocurrency market, but the security charges against them could pose a serious threat to the industry as a whole. For more insight into whether or not stablecoins meet the legal definition of a security.
If the stablecoin was formed with the intention of making a profit or if it is a derivative of a security, blockchain attorneys believes that there is a case to be made for either classification.