Paxos Under Fire: New York Regulator Orders Binance-USD Issuer To Stop Creating Stablecoin

Paxos, the financial and tech company specializing in the blockchain, is currently under fire since aside from the supposed lawsuit from the U.S. Securities and Exchange Commission (SEC), the stablecoin issuer was ordered by the New York Department of Financial Services (NYDFS) to stop creating more of its BUSD token, a fiat-backed stablecoin issued by Binance.

While the crypto industry is still reeling from the recent SEC crackdown on cryptocurrency exchange platform Kraken, the New York department of financial Services has hit Paxos with a tall order to stop the issuance of dollar-pegged Binance USD, the Wall Street Journal reported Monday.

The New York regulator reportedly ordered Paxos to stop creating more BUSD tokens.

Despite this, the stablecoin issuer will continue to manage redemptions of the product, Binance said in a statement.

The NYDFS' action came at the heels of reports revealing that the SEC has issued a Wells Notice to Paxos.

The notice is a letter the U.S. regulator uses to notify the concerned party of the planned enforcement of an action.

The accused party is given by the regulator a 30-day period to respond to the content of the notice through a brief known as the Wells Submission.

Reports claimed that the Wells Notice sent to Paxos alleged that Binance USD is an unregistered security.

"Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people across the globe," a Binance representative said.

"We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them," the representative added.

Paxos launched the U.S. dollar-backed BUSD stablecoin with Binance in 2019 after getting approval from the New York Department of Financial Services.

BUSD is currently the world's third-largest stablecoin with more than $16 billion in market capitalization based on the latest data from CoinMarketCap.

In July 2021, SEC chairman Gary Gensler said during the American Bar Association Derivative and Futures Law Committee that any asset backed by securities must work within the regulator's securities regime.

"Make no mistake: It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides a synthetic exposure to underlying securities," Gensler said.

"These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime," the SEC chairman said at the time.

PayPal, also reportedly working with Paxos in the development of its stablecoin, delayed the launch of the token, which was initially planned to debut "in the coming weeks."