Competitor Circle Reported Paxos – BUSD Mistakes To New York Authorities
- Circle is said to have reported the mistakes of rival Paxos to New York authorities.
- The NYDFS February 13 ordered Paxos to stop issuing new stablecoins BUSD and terminate its relationship with Binance. Paxos has also complied.
- The New York government warned Paxos because it failed to “safely and adequately” monitor its stablecoin.
Between the news that Paxos is being investigated by the US government and threatened to prosecute for violations related to the issuance of Binance’s stablecoin BUSD, it has been reported that Paxos’ competitor Circle denounced it with the New York watchdog last year about the mismanagement of Binance’s token reserves, Bloomberg reported citing an insider.
Accordingly, at the end of 2022, Circle filed a complaint with the New York Department of Financial Services (NYDFS), which regulates both stablecoin issuers within New York state limits, claiming they had obtained evidence on the blockchain that Binance did not maintain sufficient collateral for the issued amount of BUSD.
After the verification period, the NYDFS on February 13 ordered Paxos to stop issuing new stablecoin BUSD and terminate its relationship with Binance, citing “some unresolved issues” related to oversight of BUSD, as well as delays in providing evidence and information. The regulator also said they only licensed Paxos to issue BUSD on Ethereum but could not manage Binance converting part of this BUSD into a version on BNB Chain.
Paxos complied with the regulator’s request, announced the termination of cooperation with Binance, and stopped issuing new BUSD. However, the stablecoin company promises that its product will always be 1:1, backed by US dollars, and will continue to process customer withdrawal requests until February 2024.
A spokesperson for the NYDFS also revealed to Reuters that the reason the New York government issued Paxos a warning was that it did not “safely and adequately” monitor its stablecoin, as well as “violations” obligation to conduct periodic risk assessments and due diligence on Binance and BUSD customers to prevent bad actors from using stablecoins.”
As mentioned in an earlier Coincu News article, Paxos was sued by the US Securities and Exchange Commission (SEC), alleging that BUSD is unregistered security. The US Office of the Comptroller of the Currency (OCC) has also asked Paxos to withdraw its application for a banking license.
In the latest statement in response to the information sued by the SEC, Paxos confirmed that the SEC sent Wells notice from the SEC on February 3, 2023, and responded to express disagreement with the SEC’s argument. The SEC Wells announcement only mentioned BUSD and no other allegations against Paxos.
Some speculate that Circle’s reporting of misconduct by rivals Paxos and BUSD to US authorities stems from Binance’s policy since September 2022, which converts the balances of all stablecoins deposited by users listed on the exchange into BUSD, excluding Tether (USDT). This decision affected USDC’s market share, while BUSD’s market share increased and peaked in November 2022.
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