Regulator orders crypto firm Paxos to stop issuing Binance stablecoin

by Arthur · February 13, 2023

cryptocurrencies, Paxos, Binance Stablecoin, New York Department of Financial Services, BUSD Token, US Dollar,

BY PATRICIA KOWSMANN | UPDATED FEBRUARY 13, 2023 6:45 AM EST

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BY PATRICIA KOWSMANN | UPDATED FEBRUARY 13, 2023 6:45 AM EST

The company will continue to manage redemptions of the dollar-pegged BUSD token

New York regulators ordered a crypto company to stop issuing one of the biggest dollar-pegged cryptocurrencies, as the government’s crackdown on the sector widens.

The New York Department of Financial Services ordered Paxos Trust Co., which issues and lists Binance’s dollar-pegged cryptocurrency, to stop creating more of its BUSD token, Binance said in a statement. Paxos will continue to manage redemptions of the product, the crypto exchange added.

BUSD, also known as Binance USD, is a stablecoin backed by the US dollar on a one-to-one basis. Binance and Paxos partnered to launch it in 2019 and said the stablecoin was approved by New York’s financial regulator.

Binance said that BUSD is issued and owned by Paxos and that the crypto company only licenses its brand. There were 6.2 million holders of BUSD as of February 13, according to Binance’s website.

Paxos said in a statement that it will stop issuing new BUSD on February 21 and that it will end its relationship with Binance for the tokenized stablecoin BUSD. It added that BUSD will continue to be redeemable through at least February 2024 for US dollars or Paxo’s own stablecoin, the Pax Dollar.

Regulators have increased scrutiny of crypto companies this year. The Securities and Exchange Commission told Paxos it plans to sue the company for violating investor protection laws, The Wall Street Journal reported. The SEC has not previously taken enforcement action against a major stablecoin issuer.

Stablecoins have become a lucrative business in recent years. Traders looking to easily buy or sell cryptocurrencies have flocked to the dollar surrogates because they provide a stable token to trade in and out of without requiring bank settlements. It usually takes days to exchange cryptocurrency for cash, which can result in lost trading opportunities in a volatile market.

Companies like Paxos found a stable source of income by issuing stablecoins and investing users’ cash deposits in short-term US Treasuries, which have yielded more as the Federal Reserve raised interest rates.

Binance USD has grown to become the third largest stablecoin by market capitalization. With Paxos no longer issuing the token, its market cap is set to fall from Monday’s level of around $16 billion. The stablecoin was trading near the $1 mark early Monday morning.