BUSD Is Under Attack, Paxos Ordered to Halt Issuance of BUSD Tokens

Paxos was Ordered to Halt the Issuance of BUSD Tokens by the New York Department of Financial Services.

BUSD Is Under Attack, Paxos Ordered to Halt Issuance of BUSD Tokens

Binance USD (BUSD) is a USD-denominated stablecoin approved by the New York State Department of Financial Services (NYDFS), launched in partnership with Paxos and Binance.

Though regulatory actions against stablecoin issuer Paxos come amid a crackdown on the space after a wild 2022. 

Lawyers said Regulator's latest actions could mark an expanded interpretation of which stablecoin qualifies as securities. 

The Wall Street Journal reported the SEC sent Paxos a Notice of pending enforcement action claiming that stablecoin Binance USD (BUSD) is an unregistered security. Paxos has managed the minting and redemption of BUSD under an agreement with the exchange since 2019. 

As of February 21st, Paxos has been instructed by the New York Department of Financial Services (NYDFS) to discontinue the issuance of any new BUSD tokens.

According to a statement by a Paxos spokesperson, the company firmly disagrees with the SEC's classification and asserts that BUSD does not meet the definition of security under federal securities laws. The representative clarified that the SEC Wells notice is solely focused on BUSD and does not involve any other accusations against Paxos.

"Our customers' asset safety has always been of utmost importance to Paxos. The BUSD issued by Paxos is fully backed 1:1 with US dollar-denominated reserves, which are securely segregated and held in bankruptcy remote accounts," stated the spokesperson. They added, "We are willing to have a discussion with the SEC staff regarding this matter and will not hesitate to pursue vigorous legal action if required."

According to a Binance representative, the B USD's market capitalization, which amounted to approximately $16 billion by 5 pm ET on Monday, is likely to decrease shortly. Binance CEO Changpeng Zhao also tweeted that he anticipates users will eventually shift to different stablecoins available on the platform.

Kaplan added that the stablecoin sector is closely monitoring the outcome of the Paxos-BUSD scenario. "It is still too soon to grasp the motives behind the SEC's Wells Notice or the NYDFS directive," 

According to Riyad Carey a researcher at kaiko, he doesn't necessarily see actions against Paxos as a sign that a crackdown on USDC or USDT.

On Monday, a spokesperson from NYDFS stated to Reuters that Paxos had neglected to administer BUSD securely and appropriately and that the company had failed to fulfill its responsibility of conducting risk evaluations and due diligence to deter illicit users from accessing the platform.

Related: Binance include zk-SNARKs to upgrades proof-of-reserves verification