The leading financial regulator of New York is investigating Paxos, a stablecoin provider, and a recent report indicates that Circle, a competing stablecoin issuer, raised a concern.
According to an individual familiar with the situation, Bloomberg stated on Monday that Circle informed the New York Department of Financial Services (NYDFS) in Autumn 2022, expressing concern that Binance had insufficient reserves to support the BUSD tokens generated via Paxos, as evidenced by blockchain data.
Several days after CoinDesk’s initial report of NYDFS’s investigation of Paxos, the disclosure regarding Circle’s involvement was made.
On Monday, a spokesperson from NYDFS informed Reuters that Paxos had failed to administer BUSD safely and soundly, violating their responsibility to carry out customized and regular risk assessments and due diligence updates for Binance and Paxos-issued BUSD customers, which would have prevented malicious individuals from exploiting the platform.
The NYDFS directed Paxos to cease the creation of new BUSD tokens due to apprehensions regarding its association with Binance. Paxos acquiesced and ceased the issuance of new BUSD tokens. However, in a press release published Monday, Paxos maintained that all BUSD tokens previously issued were fully backed by reserves denominated in U.S. dollars.
Paxos’ regulatory troubles are not limited to NYDFS’s current inquiry. As of Sunday, news emerged that the U.S. Securities and Exchange Commission (SEC) intended to take legal action against Paxos for issuing BUSD as an unregistered security.
Reports have also surfaced that the U.S. Office of the Comptroller of the Currency (OCC), a federal banking regulator, may demand that Paxos withdraw its application for a complete banking charter, although Paxos has refuted these rumours. In 2021, Paxos was granted a preliminary bank charter from the OCC.
