The company’s complaints to the New York regulator were followed by Paxos being ordered to cease minting Binance BUSD stablecoin.

Circle’s complaint may have alerted the NYDFS of Binance’s allegedly lacking reserves.
Source: Unsplash

Net outflows at Binance hit $788 million over the last 24 hours. According to reports, New York State’s Department of Financial Services (NYDFS) received a complaint from stablecoin issuer Circle regarding Binance’s reserves, which are allegedly insufficient to support its tokens. This would include Binance’s US dollar-pegged BUSD stablecoin.

Now, the NYDFS has ordered Paxos Trust Co. to cease minting Binance USD (BUSD).

Paxos Trust Co. is a financial technology company that provides blockchain-based solutions for the financial industry, including its flagship product, the Paxos Standard stablecoin. It was founded in 2012 and is headquartered in New York City, USA. The company is regulated by the New York State Department of Financial Services and has received several licenses to operate as a trust and custodian.

In 2019, Binance and Paxos partnered to create Binance USD, with Paxos serving as the official custodian and issuer of BUSD. Binance integrated the stablecoin onto its trading platform, enabling users to buy, sell, and trade BUSD against other cryptocurrencies. BUSD could also be withdrawn and deposited on other platforms that supported the ERC-20 token standard.

To ensure transparency and regulatory compliance, Paxos provided regular attestations of the USD reserves backing BUSD, which were audited by a third-party accounting firm. This helped to establish trust and credibility in the stablecoin.

Paxos is now facing a potential SEC lawsuit, wherein the United States Securities and Exchange Commission (SEC) alleges Binance USD to be an unregistered security.

Circle, whose direct competitor is Paxos, is a USD Coin (USDC) issuer. Circle has filed a regulatory complaint against Binance back in 2022, alleging that according to blockchain data, Binance did not have enough crypto assets in reserves to fully support the tokens it issues.

Paxos issued a statement, asserting that it “categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws. BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.”

The SEC continues to clamp down on cryptocurrencies and crypto services providers.