The New York State Department of Financial Services (NYDFS) recently ordered Paxos, the issuer of the stablecoin, to stop issuing new BUSD coins. The resolution of the financial supervision of New York was reported by The Wall Street Journal (WSJ). The reason for the NYDFS resolution is unknown.
A Binance representative said in media comments that Paxos would still be able to handle conversions from BUSD to US dollars.
Earlier, the US Securities and Exchange Commission (SEC) accused Paxos of violating investor protection laws - according to WSJ, the SEC considers the cryptocurrency exchange Binance's stablecoin to be an unregistered security.
However, even before the allegations by the SEC, the NYDFS had already started its investigation into Paxos - but no explanation was given for the inspection at the time. Back in 2015, Paxos received a BitLicense licence from NYDFS; this licence gives companies legal permission to conduct cryptocurrency activities in New York state. There were rumours that Paxos was also facing charges from the US Office of the Comptroller of the Currency; it was claimed that they had asked to withdraw the application for a full bank charter despite the fact that preliminary approval was not received until April 2021 - but these reports were denied by representatives of Paxos itself.
In January 2023, Binance acknowledged problems in their system, which led to a shortfall of at least $1 billion in their BUSD offering between 2020 and 2021. This form of digital currency is based on the Ethereum blockchain and regulated by Paxos, but the version deployed on BNB Chain (formerly known as Binance Smart Chain) is not subject to similar rules. A company representative stated that although there were flaws in the supply chain, they had been fixed, and noted that user transactions were not affected. They declined to specify how long it lasted or when exactly the problem was discovered and fixed.
Nansen analysts reported two other cryptocurrency exchanges besides Binance that held BUSD reserves: Gate.io with ~$18.6 million and Bybit with just over $7.2 million respectively; while Binance itself had $19.2 billion in reserves by December 2022.
