Feb 11, 2023
NYDFS Investigates Paxos Trust Company Over Stablecoin Issuance
The New York Department of Financial Services (NYDFS) is reportedly investigating Paxos Trust Company, the issuer of two of the world’s largest stablecoins, Binance USD (BUSD) and Paxos Dollar (USDP).
According to a person familiar with the matter who spoke to Bloomberg, the exact motive behind the probe is currently unclear. However, an NYDFS spokesperson noted that the department is working to protect consumers from the risks associated with investing in the crypto markets.
Paxos is the issuer of BUSD, a U.S. Dollar-collateralized stablecoin which was launched in partnership with Binance in September 2019. It is the third largest stablecoin, with a market cap currently exceeding $16 billion. Paxos is also the creator of the Paxos Dollar (USDP), the sixth largest stablecoin with a market cap of about $875 billion, and the founder of PAX Gold (PAXG), a gold-backed-Ethereum token.
The firm also owns digital asset exchange itBit, which it launched in 2012 alongside the founding of Paxos. In 2015, the NYDFS issued the firm with a “BitLicense”, which legally permits them to conduct digital currency-related activities in the state of New York.
Recently, Paxos refuted rumors that the U.S. Office of the Comptroller of the Currency (OCC) may order the firm to withdraw its application for a full banking charter. The firm stated that it has not been asked to withdraw its application, nor has it been denied the charter.
Paxos claims that its BUSD and USDP token reserves are backed wholly in U.S. Dollars and U.S.Treasuries.
If reports of the NYDFS investigation are true, it wouldn’t be the first one initiated by the department over the last year. In January 2021, Coinbase Global U.S. reached a $100 million settlement with the NYDFS after they failed to look over about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.
In May 2022, the NYDFS published a stablecoin guidance report to ensure that stablecoin issuers fully back their assets and attest regularly after the Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) collapsed.
Cointelegraph reached out to Paxos and Binance to comment on the matter but did not receive an immediate response.
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