Chad Cascarilla, Paxos CEO.
Adam Jeffrey | CNBC
Crypto firm Paxos to stop issuing new Binance USD (BUSD) stablecoin under the guidance of the New York state financial regulator, Binance founder Changpeng Zhao said on Monday. Paxos’ own stablecoin was not affected.
The New York State Department of Financial Services issued the order “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance,” the regulator said Monday in a consumer alert.
“Paxas has informed us that the New York Department of Financial Services has ordered them to stop minting new BUSD,” Zhao wrote on Twitter. BUSD is a Binance stablecoin pegged to the dollar, with each BUSD hypothetically valued at one dollar, and is used on Binance to trade cryptocurrencies including Ether and Bitcoin.
“Starting February 21st, Paxos will stop issuing new BUSD tokens as directed and in close coordination with the New York Department of Financial Services,” Paxos said in a statement, adding that it was “terminating its relationship with Binance for the proprietary BUSD stablecoin brand.” .
Binance did not immediately respond to requests for comment.
Paxos’ BUSD product is built on the Ethereum blockchain and is backed by back-to-back US Treasury bonds and Treasury repurchase agreements, or repos, with Paxos reporting $16 billion in holdings as of January 31. The Paxos BUSD product is linked to , but separate from the self-issued BUSD pegged to Binance.
Self-issued Binance BUSD, which are not directly regulated by the NYDFS, are independently wrapped and issued by a crypto exchange on blockchains outside of Ethereum. In other words, Binance can take one BUSD issued by Paxos, create a similar BUSD on another blockchain (such as Binance own blockchainfor example) and freeze the corresponding BUSD issued by Paxos.
“The Department has not authorized Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos,” NYDFS said.
The move is the latest in escalating regulatory efforts to rein in the once free-flowing crypto industry. Last week, the Securities and Exchange Commission settled with crypto exchange Kraken over allegations of unregistered offers and sales related to crypto-betting platform Kraken.
“This action does not affect our ability to continue to serve new or existing customers, our continued commitment to staff expansion, or the funding of our business objectives,” Paxas said in a statement.
In 2014, New York became the first state to introduce licenses for crypto-related companies. Paxos is one of more than two dozen companies that received a BitLicense. In January, the NYDFS took action against another regulated company, Coinbase.
Two other New York state-regulated entities, Genesis Global Trading and the Gemini crypto exchange, have been charged by the Securities and Exchange Commission with engaging in the unregistered offer and sale of securities in connection with a joint crypto-lending scheme.