Circle Informed NYDFS About BUSD Months Before Crackdown
- Issuer of USDC, Circle, warned the New York State Department of Financial Services regarding BUSD last year in autumn.
- This warning came months before the NYDFS ordered the owner of Binance USD, Paxos, to stop the creation and issuance of the stablecoin.
- Paxos has stopped the minting and issuing of the stablecoin and all the funds can be redeemed for USD to USDP.
- The SEC is also potentially suing Paxos and issued a Wells Notice to the firm, considering BUSD as security.
The rivalry between the world’s largest crypto exchange, Binance, and the issuer of stablecoin USDC, Circle, has been brewing for quite some time, ever since the exchange delisted the stablecoin issued by the Boston, Massachusetts-based company. Interestingly, Binance’s very own stablecoin, BUSD, has become the cause of concern for the crypto community after the US authorities initiated a crackdown on the stablecoin, calling it a “security.”
According to a report from Bloomberg, Circle warned the New York State Department of Financial Services regarding BUSD last year. This warning came months before the NYDFS ordered the New York-based financial company specializing in blockchain payments, Paxos, to stop issuing and minting more BUSD stablecoins. It was also reported that the US Securities and Exchange Commission is suing Paxos and has issued it a Wells Notice.
The SEC stated in the Wells Notice that, as per its beliefs, BUSD is a security, and now, Paxos has a 30-day period to respond with its own legal brief. As reported earlier by BitcoinWisdom, the payments company stated that it would end its partnership with Binance for the BUSD stablecoin.
Paxos also announced that “new and existing Paxos customers will be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a regulated US dollar-backed stablecoin also issued by Paxos Trust.”
While citing a person familiar with the matter, the Bloomberg report stated that Circle alerted the New York watchdog last year after its team came face-to-face with blockchain data that revealed that Binance did not store enough crypto in reserve to support the tokens it had issued.
Interestingly, a spokesperson for the NYDFS stated that the regulator is convinced that Paxos was unable to operate BUSD “in a safe and sound manner based on extensive supervisory engagement, a recent examination, and the failure of Paxos to remediate material issues related to Paxos-issued BUSD in a timely manner.”
“Paxos failed to address key deficiencies, requiring further Department action, ordering Paxos to cease minting Paxos-issued BUSD. The Department is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols,” added the spokesperson.
On the other hand, the CEO of Binance, Changpeng Zhao, also known as CZ in the crypto space, took to social media platform Twitter to shed some light on the incident while adding that all the funds are safe.
CZ confirmed that the market supply of BUSD will continue to decrease with time and all the funds are kept in Paxos’ reserves, which have been audited by some of the biggest firms in the accounting world.
“Binance will continue to support BUSD for the foreseeable future. We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly. eg, move away from using BUSD as the main pair for trading,” said CZ while adding that “we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm.”
Interestingly, last year Binance announced that it would convert all the balances in stablecoins USDC, USDP, and TUSD to BUSD. On the other hand, rival exchange Coinbase called for the conversion of all the USDT to USDC.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
