New York Regulator Orders Shutdown Of Major Stablecoin

The main financial regulator in New York State has ordered a cryptocurrency company to stop issuing one of the world’s biggest stablecoins, as authorities continue to clamp down on digital assets.

New York City-based Paxos Trust Company said on Monday it would stop minting the dollar-pegged Binance USD token as of 21 February after receiving an order from the New York Department of Financial Services.

New BUSD coins would stop being created “as directed by and working in close coordination with the New York Department of Financial Services“, the company said.

It added it would continue to support and redeem existing BUSD tokens until at least February 2024.

Cash reserves

Binance and Paxos jointly launched the dollar-backed cryptocurrency in 2019 and it has grown to become the third-largest stablecoin and seventh-biggest cryptocurrency overall by market capitalisation, with a value of about $16 billion (£13bn), according to CoinMarketCap.

Binance said the token is wholly owned and operated by Paxos and that the company licenses its brand.

The token, widely used by crypto traders on the market-leading Binance exchange, is backed by reserves of standard cash and US Treasuries, according to Paxos.

“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS),” said Binance chief executive Changpeng Zhao on Twitter.

Crypto crackdown

“As a result, BUSD market cap will only decrease over time.”

He added that Paxos told Binance the funds were fully covered by Paxos’ bank reserves.

The Wall Street Journal on Sunday reported that the US Securities and Exchange Commission told Paxos it plans to sue the company, alleging that Binance USD is an unregistered security.

“‘IF’ BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such,” wrote Zhao on Twitter in response to the report, adding that he had no information on the lawsuit.

Reuters has reported that the US Justice Department is investigating Binance over suspected money laundering and sanctions violations.

Volatility

Last May the cryptocurrency market was rocked by the sudden collapse of so-called stablecoin TerraUSD.

The shocks to the crypto industry continued throughout the year, notably with the equally dramatic bankruptcy of exchange FTX.