Crypto Firm Paxos Will Face Charges From SEC Ordered To Halt Binance Stablecoin Mining

varsha sarkar

May 8, 2023

2:18 pm

Paxos, a cryptocurrency firm, will no longer be issuing new Binance USD (BUSD) stablecoins at the direction of the New York State Department of Financial Services, as stated by Binance founder Changpeng Zhao on Monday. However, Paxos’ own stablecoin will not be impacted. The company has also confirmed that it has been notified by the Securities and Exchange Commission (SEC) of potential charges related to its BUSD product. A stablecoin is a cryptocurrency that seeks to maintain a stable price by pegging its value to an underlying asset such as gold or, in this case, the US dollar. This is the latest move in the ongoing regulatory effort to rein in the once free-wheeling cryptocurrency industry. In connection with Kraken’s crypto staking platform, the SEC settled with the crypto exchange Kraken over allegations of unregistered offering and sale last week.

Paxos has been directed by the New York State Department of Financial Services to stop issuing new Binance USD (BUSD) stablecoins. The regulator has stated that this order was given due to unresolved issues related to Paxos’ relationship with Binance. As per the regulator, Paxos has not been able to provide adequate oversight on its association with Binance, leading to this order. The announcement was made by Binance founder Changpeng Zhao on Twitter, who confirmed that Paxos has been directed to halt minting new BUSD stablecoins. Paxos has also issued a statement in which it mentioned that it will cease the issuance of new BUSD tokens from February 21 as directed by the New York Department of Financial Services. Additionally, Paxos has announced that it will end its relationship with Binance for its branded stablecoin BUSD. This move is the latest regulatory crackdown on the cryptocurrency industry, indicating that regulators are attempting to maintain oversight over the once free-wheeling sector.

According to reports, the Securities and Exchange Commission (SEC) has notified Paxos of potential charges in connection with its BUSD product through what is known as a Wells notice. An investigation pending charges is announced in the notice. The Wall Street Journal reported that the SEC would argue that Paxos’ BUSD product was a security, a similar approach it has taken with other crypto firms, including Gemini, Genesis, and Kraken. A Paxos spokesperson has stated that the firm categorically disagrees with the SEC staff, arguing that BUSD is not a security under federal securities laws. The spokesperson further added that the Wells notice only pertains to BUSD and that there are no other allegations against Paxos. The spokesperson confirmed that Paxos is ready to engage with the SEC staff on the matter and is prepared to litigate if necessary.

Binance, which was ordered to halt the mining of Paxos’ BUSD stablecoin by the New York State Department of Financial Services, did not respond to requests for comment. Paxos’ BUSD is built on the Ethereum blockchain and is backed one-to-one by US Treasuries and Treasury Reverse Repurchase Agreements. As of January 31, Paxos reported holdings of approximately $16 billion. Binance has its own self-issued BUSD, which is not directly regulated by the NYDFS and can be issued independently on blockchains other than Ethereum. NYDFS has stated that it has not authorized Binance-Peg BUSD on any blockchain and that it is not issued by Paxos. In January, NYDFS took action against Coinbase, another regulated company. Paxos is one of over two dozen crypto-related companies that have secured a BitLicense in New York since the state became the first to establish licensing for crypto firms in 2014. Paxos confirmed that the order to halt the issuance of new BUSD tokens will not impact its ability to serve existing or new customers, grow its staff or fund its business objectives.

Finally, New York State’s financial watchdog has directed cryptocurrency startup Paxos to stop issuing new Binance USD (BUSD) stablecoins, and the company has been informed by the Securities and Exchange Commission of possible charges relating to its BUSD product. The action is the most recent in an ongoing regulatory campaign to control the formerly rogue cryptocurrency sector. The BUSD product from Paxos is based on the Ethereum blockchain and is fully backed by U.S. Treasuries and Treasury Reverse Repurchase Agreements, with Paxos reporting some $16 billion in holdings as of Jan. 31. Paxos’ BUSD product is related to, but separate from, Binance’s self-issued Binance-pegged BUSD, which is not directly regulated by NYDFS.

varsha sarkar

May 8, 2023

2:18 pm

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