New York State Department of Financial Services Explains Why It Ordered the Suspension of Issuance of the BUSD Stablecoin

Stop issuing BUSD

The New York State Department of Financial Services (NYDFS) issued a warning to consumers on the 13th, ordering Paxos to stop issuing the US dollar stablecoin Binance USD (BUSD).

connection: New York authorities order Paxos to suspend new issuance of stablecoin “BUSD”

He explained that the reason for ordering the suspension of issuance is that there are several unresolved issues regarding the relationship between Paxos and Binance regarding BUSD. He then informed that Paxos was making an announcement to consumers about BUSD.

NYDFS claims it gave Paxos the license to issue BUSD on the Ethereum (ETH) blockchain. On the other hand, it says it does not approve BUSD (Binance-peg BUSD) issued on other blockchains.

According to Binance’s official website, BUSD on Ethereum will be issued by Paxos under the supervision of NYDFS. Binance provides a service that locks BUSD on Ethereum and issues the same amount of BUSD on other networks.

A NYDFS representative told Reuters that Paxos had violated its risk management and due diligence obligations to clients of Binance and BUSD as the reason for the suspension. He said that could allow criminals to abuse Binance.

In addition, “Bloomberg” reported on the 14th the trend of stable coin “USD coin (USDC)” management company circle company. Circle reportedly told NYDFS last fall after reviewing blockchain data that Binance may not have enough BUSD reserves.

The NYDFS said that Paxos was obliged to redeem the BUSD to the US dollar 1:1 to the affected customers, and that the NYDFS would oversee the redemption.

It is also reported that the SEC (U.S. Securities and Exchange Commission) claims that BUSD is an unregistered security, but at the time of writing this article, there is no official announcement from the SEC.

connection: What is a stablecoin that even beginners can understand | Explain features and use cases

Paxos announcement

Following the NYDFS order, Paxos announced on the 13th that it will stop issuing new BUSD from the 21st of this month. He also explained that the relationship with Binance over BUSD will also end.

He claims the company is under NYDFS oversight and audited by one of the big four accounting firms. We will continue to prioritize the safety of customer assets, continue to manage BUSD reserves, and will respond to redemption of BUSD until at least February 2024.

Paxos also stresses that the BUSD it issues is backed by reserve assets at a 1:1 ratio.

connection: Paxos, a stablecoin issuer, is being investigated by US regulators

In response to the SEC’s reported allegations of BUSD securities, the company said it “resolutely opposes, cooperates with SEC staff, and stands ready to vigorously pursue legal action if necessary.”

Binance side explanation

Binance CEO Changpong Zhao (CZ) issued a statement on Twitter in response to the issue. He explained that he had heard that Paxos would end new issuance of BUSD, and said that customers’ assets were safe, first of all trying to assuage users’ concerns. And from now on, the market capitalization of BUSD will decrease over time.

#BUSDA thread. 1/8

In summary, BUSD is issued and redeemed by Paxos. #SAFU!

— CZ Binance (@cz_binance) February 13, 2023

connection: What is Binance, the world’s largest virtual currency exchange?

However, he said he had no information other than reports about the relationship between the SEC and Paxos. Even if it did lead to a lawsuit, he said it was a lawsuit between the SEC and Paxos.

CZ, who is not an expert in U.S. law, argues that it is unclear why a stablecoin like BUSD is a security. He points out that if BUSD is decided to be a security, it will have a significant impact on the development of the cryptocurrency industry in the United States.

He also explained that Binance will continue to support BUSD, but expects users to leave over time. In that case, he said that it would be necessary to modify the product, such as changing the currency pair.

In September 2022, Binance announced a policy to focus stablecoin usage on exchanges on BUSD. In the same month, it automatically converted stablecoins such as USDC to BUSD.

connection: Currency pair integration of major stablecoins on Binance |

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