Largest stablecoin issuer, Paxos, has been ordered by the New York Department of Financial Services (NYDFS) to cease the minting and issuing of new Binance USD (BUSD) stablecoins. NYDFS regulates the firm, and BUSD is wholly owned, issued, and redeemed by Paxos.
This action by the regulator comes a few days after the Securities and Exchange Commission (SEC) issued Paxos a Wells Notice. It informed Paxos of its plan to sue for violating investor protection laws concerning the Binance USD token.
The SEC also alleges that BUSD is an unregistered security. This decision did not sit well with some crypto analysts who stated that stablecoins should not be considered security as it does not meet the requirements of the Howey Test.
Binance CEO, Changpeng Zhao, made a Twitter post stating this move will cause a decrease in the BUSD market cap. However, Paxos will continue to service the product and manage redemptions.
He also stated that Paxos assured them that funds are SAFU (Secured Asset Fund for Users). The funds are also protected by their banks' reserves, which have already been audited multiple times.
This reiterates a statement by Paxos, which says,
“Reserves are held 100% in cash and US treasuries, meaning that customer funds are always available for 1:1 redemption.”
Binance will continue to support BUSD in the nearest future. However, it acknowledges that users will most likely migrate to other stablecoins. Hence, it will adjust its products accordingly based on users’ needs.
With the current regulatory uncertainty in some markets, Binance will review other projects in those jurisdictions. This ensures that users are not affected by all that is happening.
