Feb 10, 2023

NYDFS Investigates Paxos Trust Company

The New York Department of Financial Services (NYDFS) is reportedly investigating Paxos Trust Company, the issuer of Binance USD (BUSD) and Paxos Dollar (USDP) stablecoins. According to a person familiar with the matter, the exact motive behind the probe is currently unclear.

Paxos, founded in 2012, is a New York-based stablecoin issuer. The firm is the third largest stablecoin issuer in terms of market cap, with BUSD currently at over $16 billion and USDP at $875 billion. They are also the creators of PAX Gold (PAXG), a gold-backed-Ethereum token.

In 2015, Paxos was issued a “BitLicense” by the NYDFS, which legally permits companies to conduct digital currency-related activities in the state of New York. The firm has also released a statement on their website, affirming that their BUSD and USDP token reserves are backed wholly in U.S. Dollars and U.S.Treasuries.

This is not the first investigation initiated by the NYDFS in the past year. In January 2021, Coinbase Global U.S. reached a settlement of $100 million with the regulator after they failed to look over about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.

Following the collapse of the Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) in May 2022, the NYDFS published a stablecoin guidance report to ensure stablecoin issuers fully back their assets and attest regularly.

The NYDFS spokesperson declined to comment on the ongoing investigation but noted that the department is broadly working to protect consumers from risks associated with investing in the cryptocurrency market.

Cointelegraph reached out to Paxos and Binance for comment but did not receive an immediate response.

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