cryptocurrencies, Paxos, Binance Stablecoin, New York Department of Financial Services, BUSD token, US dollars,
BY PATRICIA KOWSMANN | UPDATED FEB 13, 2023 06:45 AM EST
Company to continue to manage redemptions of dollar-pegged BUSD token
New York regulators directed a crypto company to stop issuing one of the largest dollar-pegged cryptocurrencies, as a government clampdown on the sector widens.
The New York Department of Financial Services ordered Paxos Trust Co., which issues and lists Binance’s dollar-pegged cryptocurrency, to stop creating more of its BUSD token, Binance said in a statement. Paxos will continue to manage redemptions of the product, the crypto exchange added.
BUSD, also known as Binance USD, is a stablecoin backed by U.S. dollars on a one-to-one basis. Binance and Paxos partnered to launch it in 2019 and said the stablecoin was approved by New York’s financial regulator.
Binance said that BUSD is issued and owned by Paxos and that the crypto company only licenses its brand. There were 6.2 million holders of BUSD as of Feb. 13, according to Binance’s website.
Paxos said in a statement that it will stop issuing new BUSD on Feb. 21. and that it will end its relationship with Binance for the branded stablecoin BUSD. It added that BUSD will continue to be redeemable through at least February 2024 for U.S. dollars or Paxos’ own stablecoin, Pax Dollar.
Regulators have ramped up scrutiny of crypto companies this year. The Securities and Exchange Commission told Paxos that it plans to sue the company for violating investor protection laws, The Wall Street Journal reported. The SEC hasn’t previously taken enforcement action against a major stablecoin issuer.
Stablecoins have become a lucrative business in recent years. Traders wanting to easily buy or sell cryptocurrencies have flocked to the dollar surrogates because they provide a stable token to trade in and out of without requiring bank settlements. It typically takes days to exchange cryptocurrencies for cash, which can result in missed trading opportunities in a volatile market.
Companies such as Paxos found a steady source of income by issuing stablecoins and investing users’ cash deposits in short-term U.S. Treasurys, which have yielded more as the Federal Reserve raised interest rates.
Binance USD has grown to become the third-largest stablecoin by market cap. With Paxos no longer issuing the token, that market cap is set to drop from its Monday level of about $16 billion. The stablecoin was trading close to its $1 value early Monday morning.