Paxos Ceases Issuance of Binance Dollar-Backed Token
The New York Department of Financial Services has issued a directive to Paxos Trust Co., a crypto firm that issues Binance’s dollar-pegged cryptocurrency, to stop creating more of its BUSD token. BUSD, also known as Binance USD, is a stablecoin backed by US dollars on a one-to-one basis. Binance and Paxos partnered to launch it in 2019 and had stated that it was approved by New York’s financial regulator. According to Binance’s website, there were 6.2 million holders of BUSD as of February 13th.
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. Paxos will continue to manage redemptions of the product. WSJ https://t.co/jnuRqzHgQS https://t.co/IOFWGeydKN
— Wu Blockchain (@WuBlockchain) February 13, 2023
First-ever SEC Enforcement Action
Paxos will continue to manage redemptions of the product, but the loss of its issuer is expected to have a significant impact on its market capitalization, which stood at around $16 billion on Monday. Binance USD has grown to become the third-largest stablecoin by market cap, and its loss of Paxos as an issuer will likely result in a drop in market cap.
The directive by the New York regulators is part of a wider government clampdown on the crypto sector. The Securities and Exchange Commission (SEC) has informed Paxos that it plans to sue the company for violating investor protection laws. This is the first time that the SEC has taken enforcement action against a major stablecoin issuer.
Future of Stablecoins Unclear
Stablecoins have become a lucrative business in recent years, attracting traders who want to easily buy or sell cryptocurrencies. The stability of these tokens provides a way to trade in and out of cryptocurrencies without requiring bank settlements, which can take days to process and result in missed trading opportunities in a volatile market. Companies like Paxos have found a steady 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.
The directive by New York regulators to stop the issuance of Binance USD by Paxos Trust Co. is part of a wider government clampdown on the crypto sector. This move is expected to have a significant impact on the market capitalization of the third-largest stablecoin, but it remains to be seen what the long-term effects will be.
