- After the collapse of FTX, the U.S. federal government is tightening its grip on the crypto industry.
- Both the New York Department of Financial Services and SEC are keeping an eye on the Binance USD token.
The top finance regulator of New York, The New York Department of Financial Services, recently commanded Paxos Trust Co. LLC to stop issuing new Binance USD stablecoins.
The NYDFS obligated the company to stop minting the cryptocurrency, which is a type of token that is backed by U.S. dollar-denominated reserves and maintains a 1:1 parity with the U.S. dollar. Stablecoins are frequently used to get into cryptocurrency economies. The reason is the ease of trade due to lack of volatility between other currencies like ether and Bitcoin.
As per the regulator, the obligation 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 biggest crypto exchange by market cap. Changpeng Zhao, Chief Executive commented in a Twitter thread that the company would not stop supporting BUSD “for the foreseeable future.” He estimated that if no more Binance-branded tokens would be created, its market cap would decline, however.
Zhao wrote, “We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly. e.g., move away from using BUSD as the main pair for trading, etc.”
NYDFS regulates Paxos, giving it consent to issue some stablecoin like USDP or Pax dollar is given by NYDFS.
Paxos replied in a statement that it is going to stop issuing new BUDS and will brake its relationship with Binance for the branded stablecoin. Although, the company will not stop operating the current ecosystem of Paxos-branded BUSD and provide customers to exchange them for USDP.
The Paxos-branded BUSD product is built upon the Ethereum blockchain and was highlighted to have a 16 billion dollar market cap till Jan 31.
Paxos said, “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.” Also, it does not harm the company’s USDP stablecoin.
This news is a reflection of the news reported late on Sunday by Wall Street Journal that the U.S. Securities and Exchange Commission intends to take action on the company over BUSD which is a potential unregistered security.
Many U.S. regulators including SEC have been augmenting investigations and lawsuits against crypto companies. It is concerned with crypto companies’ cryptocurrency activities as a consequence of the sudden collapse and bankruptcy of the crypto exchange FTX Trading Ltd. In January, the SEC kept its eyes on Gemini Trust Co. LLC and Genesis Capital LLC, claiming that both the companies offered unregistered crypto asset securities. Not long ago, Kraken, the crypto exchange paid USD 30 million as a fine to the SEC and stopped its crypto staking services to settle the issue.
All of this is related to the increasing trend of regulatory attention and crackdowns as U.S. regulators work to build frameworks. It helps in dealing with the cryptocurrency industry and other regulatory agencies warn banks and others against joining the industry together.