Feb 11, 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). The exact motive behind the probe is still unknown, as a spokesperson from the NYDFS declined to comment on ongoing investigations.
Paxos is a New York-based stablecoin issuer that was founded in 2012. It is the third largest stablecoin, with a market cap of over $16 billion. The company is also the creator of the Paxos Dollar (USDP), the sixth largest stablecoin with a market cap of $875 billion. Additionally, Paxos is the founder of PAX Gold (PAXG), a gold-backed-Ethereum token.
In 2015, the NYDFS issued Paxos with “BitLicense” which legally permits companies to conduct digital currency-related activities in the state of New York. Paxos also claims on its website that its BUSD and USDP token reserves are backed wholly in U.S. Dollars and U.S.Treasuries.
The news of Paxos’ investigation follows the settlement between Coinbase Global U.S. and the NYDFS in January. The NYDFS found that Coinbase failed to look over about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.
The NYDFS also published a stablecoin guidance report in May, 2022, shortly after Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) collapsed. The guidance report was designed to ensure stablecoin issuers fully back their assets and attest regularly.
As the web3 space continues to expand and evolve, the NYDFS is working to protect consumers from the risks associated with investing in the cryptocurrency market. Paxos is currently in the process of applying for a national trust bank charter from the U.S. Office of the Comptroller of the Currency (OCC), and has not been asked to withdraw its application.
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