Paxos to Cease Minting New BUSD and End Relationship with Binance
Binance chief says they will continue BUSD support but, “foresee users migrating to other stablecoins over time.”
Blockworks Exclusive Art by Axel Rangel
The New York Department of Financial Services (NYDFS) has directed Paxos to cease issuance of new BUSD tokens, effective Feb. 21.
“BUSD will remain fully supported by Paxos and redeemable to onboarded customers through at least February 2024,” Paxos said in a statement. “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.”
The precise reason for the NYDFS direction was not given. Stablecoins issued by Paxos Trust under its own brand are unaffected, a spokesperson confirmed to Blockworks, but declined to comment further.
A statement by the NYDFS terms the direction “a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance through Paxos-issued BUSD.”
Paxos has managed the minting and redemption of BUSD under a brand license agreement with Binance since 2019.
“When Binance sends us fiat, we create BUSD tokens and provide them to Binance. When Binance sends Paxos BUSD for redemption, Paxos burns the BUSD tokens and provides Binance USD in return,” Paxos’ spokesperson previously told Blockworks.
But Binance has also minted its own stablecoin IOU, which it labels BUSD, that are not directly connected to Paxos Trust, as noted in the firm’s BUSD frequently asked questions.
“Binance independently mints Binance-Peg BUSD on other blockchains (e.g., BNB Chain, Polygon and Avalanche) and pegs the tokens to BUSD on a one-to-one basis,” the FAQ explains. “This allows holders of both tokens to swap tokens between Ethereum and other blockchains.”
Investors concerned over this dynamic previously sold off Binance Coin (BNB) holdings in December, following the disclosure that Binance’s proof-of-reserves partner Mazars Group was ending its own relationship with the exchange giant.
BNB is once again down sharply on the heels of the Paxos announcement, off about 8% in the past 12 hours.
Binance is reviewing its options in view of “ongoing regulatory uncertainty in certain markets,” a spokesperson told Blockworks, “to ensure our users are insulated from further undue harm.”
In the near term, the BUSD market cap can be expected to decrease, the Binance spokesperson said, noting that “Paxos also assured the funds are safe, and fully covered by reserves in their banks.”
Binance CEO Changpeng Zhao (CZ) tweeted Monday that he expects users will migrate to other stablecoins on Binance in due course.
Tether’s USDT and Circle’s USDC can be expected to be the main beneficiaries in terms of market share.
This story was updated on Feb. 13, 2023, at 8:50 am ET, with a statement from the NYDFS.
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