Feb 11, 2023

NYDFS Investigates Paxos Trust Company Over Stablecoin Practices

The New York Department of Financial Services (NYDFS) is reportedly conducting an investigation into Paxos Trust Company, the stablecoin issuer behind Binance USD (BUSD) and Paxos Dollar (USDP). The exact reason behind the investigation is still unknown, however, a spokesperson for the NYDFS noted that the department is working to protect consumers from any risks associated with investing in the crypto market.

Paxos has been issuing BUSD since 2019 when they partnered with Binance. It is currently the third-largest stablecoin, with a market cap of over $16 billion. In 2018, Paxos launched the Paxos Dollar (USDP) which is now the sixth-largest stablecoin with a market cap of about $875 billion. The company is also the founder of PAX Gold (PAXG), a gold-backed-Ethereum token.

In 2015, the NYDFS granted Paxos a “BitLicense” which legally permits companies to conduct digital currency-related activities in New York. Recently, there have been 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, however, the company has refuted these rumors.

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

If the reports of the investigation are true, it wouldn’t be the first one initiated by the NYDFS. In January, Coinbase Global U.S. reached a $100 million settlement with the New York regulator 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 stablecoin issuers fully back their assets and attest regularly. The report was released shortly after Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) collapsed.

Paxos and Binance have yet to comment on the matter. With the increasing popularity of NFTs, Paxos has the opportunity to serve as a leader in the crypto space. The company could use its experience in the field to develop innovative NFT marketing strategies and become a web3 agency. It could provide services such as Twitter NFT Marketing, NFT Promotion, and NFT Marketing Agency services in order to help others sell NFTs. With the right strategies in place, Paxos could become a major player in the web3 space.

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