As the government’s crackdown on the crypto industry continues to spread, New York officials ordered a crypto corporation to cease creating one of the biggest dollar-pegged coins.
Paxos Trust Co., which creates and lists Binance’s dollar-pegged cryptocurrency, BUSD, has been ordered by the New York Department of Financial Services to cease issuing any BUSD tokens, the exchange stated in a statement. The product’s redemptions would still be handled by Paxos, the cryptocurrency exchange said.
Also known as Binance USD, BUSD is a stablecoin pegged 1:1 to the dollar. Binance and Paxos jointly announced the introduction of the stablecoin in 2019, claiming that it has been sanctioned by New York’s financial authority.
Earlier today (Monday), Binance USD traded as low as 98 US cents, a tiny deviation from its dollar peg, according to statistics from CoinDesk. As a result of traders shifting their holdings to tether, the stablecoin traded at a discount.
According to CoinDesk, Binance’s native token, BNB, dropped by more than 10% on Monday.
According to Kaiko’s head of research, “traders holding BUSD are searching for the shortest way to exit,” who goes by the name Clara Medalie. Binance facilitates transactions in Tether and a few other stablecoins against BUSD by listing them on their platform.
It “kind of confirms the strength of tether,” she said.
This year, regulators have increased their monitoring of cryptocurrency businesses. According to The Wall Street Journal, Paxos was notified by the SEC that it faces legal action for potential violations of investor protection rules. To yet, the SEC has not taken any significant action against a stablecoin issuer.
The stablecoin industry has flourished in recent years. Dollar surrogates have attracted investors looking for a reliable token to trade in and out of cryptocurrency transactions that do not need bank settlements. Trading chances in a turbulent market may be lost since exchanging cryptocurrency for cash might take several days.
By issuing stablecoins and investing user deposits in short-term U.S. Treasurys, businesses like Paxos have discovered a reliable stream of revenue that has increased in yield when the Federal Reserve increased interest rates.
According to a source familiar with the situation, New York’s financial regulator determined that Paxos failed to undertake periodic risk assessments and due diligence of Binance and consumers holding BUSD issued by Paxos.
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According to the source, the department instructed Paxos to cease issuing BUSD after the company failed to rectify the aforementioned issues.
A representative from Paxos didn’t immediately respond to a request for comment.
Binance has said that BUSD is issued and held by Paxos and that it just licenses its brand name. According to Binance’s website, there were 6.2 million BUSD holders as of February 13.
According to a press release from Paxos, the issuance of new BUSD will cease on February 21, and the company’s partnership with Binance over the BUSD branded stablecoin will also come to an end. Paxos also said that until February 2024, holders of BUSD may exchange their tokens for USD or Pax Dollar, another stablecoin issued by the company.
Market capitalization-wise, Binance USD is now the third biggest stablecoin. Given that Paxos will no longer be creating the token, its market value is expected to fall from Monday’s high of about $16 billion.
