Paxos To Suspend BUSD Minting And Sever Ties With Binance USD

The New York Department of Financial Services (NYDFS) has ordered blockchain company Paxos to stop issuing the dollar-pegged Binance USD (BUSD) stablecoin.

• What: The NYDFS has ordered Paxos to cease creating new Binance USD (BUSD) tokens, Binance CEO Changpeng Zhao said on Twitter
• Why: The regulator cited “several unresolved issues related to Paxos’ oversight of its relationship with Binance”
• What next?: The issuer will stop issuing new BUSD tokens starting February 21 and end its relationship with Binance for the branded BUSD stablecoin, but the NYDFS will keep a hawkish eye to ensure orderly redemptions

Stablecoin issuer Paxos will stop issuing new BUSD (Binance USD) stablecoins following a directive by the New York Department of Financial Services (NYDFS), according to an official statement on Monday. This comes shortly after the SEC issued a ‘wells notice’ to Paxos, informing the company of planned enforcement action on allegations that Binance USD is an unregistered security.

JUST IN: 🇺🇸 SEC to sue $BUSD stablecoin issuer Paxos.

— Watcher.Guru (@WatcherGuru) February 12, 2023

Paxos’ BUSD product is built atop the Ethereum blockchain and backed 1:1 by U.S. Treasury and Treasury Reverse Repurchase Agreements. As of January 31, the stablecoin issuer reported $16 billion in holdings. Notably, Paxos’ BUSD, though related to Binance’s self-issued Binance-pegged BUSD, is a separate product. The NYDFS does not regulate Binance’s self-issued BUSD directly, which is separately wrapped and issued by crypto platforms on the Ethereum blockchain, among others. This means that Binance can isolate one Paxos-issued BUSD, develop a similar BUSD on another blockchain (such as its own), and freeze a matching Paxos-issued BUSD. According to the NYDFS, however, “the department has not authorized Binance-Peg BUSD on any blockchain.” Although Paxos’ own stablecoin remains unaffected, the NYDFS issued the directive in an investor alert citing “several unresolved issues related to Paxos’ oversight of its relationship with Binance.” Binance CEO Changpeng Zhao commented on Twitter, saying Paxos issues and redeems BUSD and assures the safety of funds. Notably, BUSD is Binance’s stablecoin pegged 1:1 against the dollar.

2/ We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS).

Paxos is regulated by NYDFS.

BUSD is a stablecoin wholly owned and managed by Paxos.

— CZ 🔶 BNB (@cz_binance) February 13, 2023

In a statement, the stablecoin issuer said that the crypto firm would stop issuing new BUSD tokens starting February 21 following an official order, adding that it would “end its relationship with Binance for the branded stablecoin BUSD.” The stablecoin issuer also explained, “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.” In a statement published on the NYDFS website, the regulator confirmed it would be monitoring Paxos closely to ensure that the issuer can facilitate redemptions in an orderly manner subjected to enhanced, risk-based compliance protocols.