New York’s top financial regulator is examining stablecoin issuer Paxos, with rival stablecoin issuer Circle reportedly sounding the alarm.
Bloomberg reported that Circle informed the New York Department of Financial Services (NYDFS) in the fall of 2022 that blockchain data suggested Binance lacked sufficient reserves to support the BUSD tokens it had issued through Paxos.
Several days have passed since the report that the NYDFS was examining Paxos.
A NYDFS spokesman said that Paxos was not administering BUSD safely and had violated its obligation to conduct tailored, periodic risk assessments and due diligence refreshes of Binance and Paxos-issued BUSD customers to prevent bad actors from using the platform.
NYDFS asked Paxos to cease the minting of BUSD owing to its ties with Binance. Paxos agreed to stop minting new BUSD tokens but stated that all BUSD tokens it has issued were completely backed by reserves denominated in U.S. dollars.
The NYDFS’ current inquiry does not resolve Paxos’ regulatory concerns. It was announced on Sunday that the U.S. SEC would sue Paxos for issuing BUSD as an unregistered security.
According to reports, the U.S. Office of the Comptroller of the Currency (OCC), a federal bank regulator, may also request that Paxos drop its application for a full banking licence. (The OCC granted Paxos a temporary bank charter in 2021.) Paxos refutes these rumours.