Rival Stablecoin Warned NY Financial Watchdog About BUSD

“The regulator for the capital of capital markets does not need a single company to bring to its attention a widely evidenced and reported situation,” says Circle spokesperson

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Satheesh Sankaran/Shutterstock.com modified by Blockworks

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Binance USD might just be in hot water because of rival stablecoin issuer Circle.

Circle, the creator of USD Coin, warned the New York State Department of Financial Services (NYDFS) in the autumn of 2022 about inefficiencies in Binance’s token management system, Bloomberg reported Tuesday. 

The regulator was reportedly told Binance didn’t have adequate reserves to support the Paxos-issued BUSD token, based on blockchain data.

On Monday, the state department ordered Paxos to stop minting BUSD “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.” Paxos then informed customers it would end its relationship with Binance for the issuance of the stablecoin and that from Feb. 21, it will no longer issue new BUSD. 

Circle declined to comment, citing communication with regulator, but said it is widely known that Binance announced it would convert one-to-one USDC, USDP and TUSD stablecoins to Binance’s own BUSD. 

“The regulator for the capital of capital markets does not need a single company to bring to its attention a widely evidenced and reported situation. Public blockchains make this information visible and immutable,” a spokesperson told Blockworks.

NYDFS didn’t return Blockworks’ request for comment by press time.

BUSD currently has a market cap of around $16 billion but Binance CEO Changpeng Zhao said, “as a result of the NYDFS enforcement action, its market cap will only decrease over time.”

Paxos told Blockworks on Monday that BUSD is always backed 1:1 with US dollar-denominated reserves.

Paxos isn’t just facing trouble from one regulator. It could also possibly be sued by the Securities and Exchange Commission over allegations BUSD is an unregistered security.

The actions of the SEC appear to be way off the mark, according to Marcus Sotiriou, market analyst at GlobalBlock. “They have labeled BUSD a security, yet hard-pegged stablecoins have no expectation of profit and have a fixed price, like stored value Gift Cards.”

The SEC also recently charged crypto exchange Kraken for the offer and sale of its crypto staking as-a-service program. Kraken has neither admitted or denied the allegations, but agreed to settle for $30 million. 

Jason Gottlieb, a cryptocurrency lawyer, noted on Twitter that the SEC’s claim about “all crypto projects have to do is come in and register” is insulting because several projects are plainly refused. Register as what when the regulations don’t fit? 

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“People are desperately trying to figure out how to offer a product legally whilst getting zero guidance,” Sotiriou said.


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