The New York Department of Financial Services has ordered cryptocurrency company Paxos to stop issuing new Binance USD stablecoins, Binance CEO Changpeng Zhao tweeted Monday.
The order stems from "several unresolved issues related to Paxos' oversight of its relationship with Binance," NYDFS said Monday in a consumer alert.
Paxos, meanwhile, has come under fire from a second regulator. The Securities and Exchange Commission told Paxos it plans to sue the company over violations to investor protection laws, according to a Wall Street Journal report Sunday.
Such a move would mark the first SEC enforcement action against a major stablecoin issuer. The regulator, to this point, has concentrated its efforts on particular products, or on companies that trade in assets not specifically pegged to the dollar. Crypto exchange Kraken last week agreed to pay $30 million to the regulator and end a staking-as-a-service platform for U.S. investors.
“It certainly feels, from an industry perspective, like there’s a crypto carpet bombing going on right now,” Kristin Smith, CEO of Blockchain Association, a crypto industry group, told The Wall Street Journal.
Binance USD ranks as the third-largest stablecoin, with a $16 billion market cap, the Journal reported. That figure is expected to drop as stablecoin holders move their assets elsewhere.
Paxos will continue to manage redemption of BUSD through at least February 2024 but will stop issuing new tokens in the currency Feb. 21, the company said.
Binance and Paxos partnered to launch BUSD in 2019 and said the stablecoin was approved by NYDFS. The regulator, however, said “the Department has not authorized Binance-Peg BUSD on any blockchain.”
Paxos’ own stablecoin, the Pax Dollar, was not affected by Monday’s action.
"This action does not impact our ability to continue serving new or existing customers, our continued dedication to grow our staff or fund our business objectives," Paxos said in a statement.
The BUSD token represented roughly 40% of the monthly trading volume on the Binance exchange last month, the Financial Times reported.
But Binance’s statements regarding Monday’s development “could be read as a thinly veiled admission that they don’t want to be in the United States,” Ilan Solot, co-head of digital assets at Marex Solutions, told the Financial Times. “The treatment crypto is receiving by U.S. regulators is going to push the industry out of the country.”
Bradley Duke, co-chief executive at ETC Group, a crypto exchange-traded products provider, told Bloomberg the halt on new BUSD “is certainly not good news for Binance” because the token “is an important conduit.”
“The bigger question is, what is the SEC’s endgame here following last week’s crackdown on Kraken?” Duke said.
