Feb 11, 2023

NYDFS Investigates Paxos Trust Company for Crypto Market Risks

The New York Department of Financial Services (NYDFS) is reportedly investigating Paxos Trust Company, a stablecoin issuer based in New York, according to a person familiar with the matter. The exact motive of the probe is currently unclear.

Paxos is the issuer behind the popular Binance USD (BUSD) and Paxos Dollar (USDP) stablecoins, both of which have a market cap exceeding $16 billion and $875 billion, respectively. The company is also the creator of the PAX Gold (PAXG), a gold-backed-Ethereum token, and the founder of digital asset exchange itBit, which was launched in 2012.

The NYDFS issued Paxos with “BitLicense” in 2015, which legally permits companies to conduct digital currency-related activities in the state of New York.

The news follows the recent rumors that the U.S. Office of the Comptroller of the Currency (OCC) may order Paxos to withdraw its application for its full banking charter, which was only preliminarily approved in April 2021. Paxos has since clarified that it has not been asked to withdraw its application.

The company claims on its website that its BUSD and USDP token reserves are backed wholly in U.S. Dollars and U.S.Treasuries.

The NYDFS has been working to protect consumers from risks associated with investing in the cryptocurrency market. The department recently reached a $100 million settlement with Coinbase Global U.S. after they found that they failed to look over about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.

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

The web3 space is rapidly evolving, and with it, the need for more comprehensive regulation of digital assets. As more companies enter the crypto market, the NYDFS is taking an increasingly active role in monitoring and protecting consumers.

Paxos is a leader in the space, offering a suite of products and services for investors, including its widely adopted BUSD and USDP tokens. As the firm continues to grow, it will be interesting to see how the NYDFS investigation impacts the company’s operations.

Cointelegraph reached out to Paxos and Binance to comment on the matter, but did not receive an immediate response.

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