The New York Department of Financial Services, the top finance regulator of New York, today ordered Paxos Trust Co. LLC to cease issuing new Binance USD stablecoins.
The NYDFS called upon the company to cease minting the cryptocurrency, which is a type of token that maintains a 1:1 parity with the U.S. dollar and is backed by U.S. dollar-denominated reserves. Stablecoins are often used for entering into cryptocurrency economies due to this lack of volatility and ease of trade between other currencies such as Bitcoin and ether.
According to the regulator, the order came about “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.”
Binance Holdings Ltd. is the largest crypto exchange by market cap. Chief Executive Changpeng Zhao said in a Twitter thread that the company would continue to support BUSD “for the foreseeable future.” He predicted that as no more Binance-branded tokens would be produced, its market cap would diminish, however.
“We do foresee users migrating to other stablecoins over time,” Zhao wrote. “And we will make product adjustments accordingly. eg, move away from using BUSD as the main pair for trading, etc.”
Paxos is regulated by the NYDFS, which gives it permission to issue certain stablecoins, such as the Pax dollar, or USDP.
In a statement, Paxos said that it will stop issuing new BUSD and will end its relationship with Binance for the branded stablecoin. The company will, however, continue to operate the current ecosystem of Paxos-branded BUSD and allow customers to exchange them for USDP.
The Paxos-branded BUSD product is built atop the Ethereum blockchain and was reported to have a $16 billion market cap as of Jan. 31.
“This action does not impact our ability to continue serving new or existing customers, our continued dedication to grow our staff or fund our business objectives,” Paxos said. It also does not affect the company’s USDP stablecoin.
This news comes on the heels of news reported by the Wall Street Journal late Sunday that the U.S. Securities and Exchange Commission plans to sue the company over BUSD being a potential unregistered security.
The SEC and other U.S. regulators have been stepping up investigations and lawsuits against crypto companies regarding cryptocurrency activities in the wake of the dramatic collapse and bankruptcy of the crypto exchange FTX Trading Ltd. In January, the SEC set its sights on Genesis Capital LLC and Gemini Trust Co. LLC, alleging that both companies offered unregistered crypto asset securities. More recently, the crypto exchange Kraken paid $30 million in fines to the SEC and shut down its crypto staking services as part of a settlement.
All of this is part of an increasing trend of regulatory attention and crackdowns as U.S. regulators work to build frameworks for dealing with the cryptocurrency industry and other regulatory agencies warn banks and others against joining the industry altogether.