Paxos Stops BUSD Mint after SEC Action, Binance’s CZ Calms “Funds Are Safe”

Twelve hours
after The Wall Street Journal (WSJ) reported that cryptocurrency firm Paxos is
facing a Securities and Exchange Commission (<a href=”https://www.financemagnates.com/tag/sec/” target=”_blank” rel=”follow”>SEC</a>) lawsuit over violations of
user protection regulations, the further events escalated quickly. The company decided to halt
mint of new Binance’s BUSD tokens, and the <a href=”https://www.financemagnates.com/terms/c/cryptocurrency-exchange/” class=”terms__main-term” id=”601e2e5f-0c28-4253-9ad4-5e6b251ba2fa” target=”_blank”>cryptocurrency exchange</a> Chief
Executive, Changpeng ‘CZ’ Zhao, calms clients by saying that funds are safeSEC to Go After PaxosThe WSJ
reported on Monday night that, according to people familiar with the matter,
the SEC intends to file a lawsuit against Paxos, a stablecoin provider and the itBit
crypto exchange operator.<blockquote class=”twitter-tweet”>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 <a href=”https://t.co/iPfHjdo2lV”>https://t.co/iPfHjdo2lV</a>— The Wall Street Journal (@WSJ) <a href=”https://twitter.com/WSJ/status/1625076087985262593?ref_src=twsrc%5Etfw”>February 13, 2023</a></blockquote>The SEC was
said to have sent the company’s representatives a so-called Wells notice, a
type of document the agency uses to inform entities of potential legal actions
against them. According to the regulator, the Binance USD (BUSD) stablecoin
that Paxos mints and lists bear the hallmarks of unregistered securities. The
four-year partnership between Binance and Paxos that began in 2019, has now
come into question. Meanwhile, the SEC is putting pressure on the crypto
industry, having cracked down on Kraken, another crypto exchange, for offering
cryptocurrency staking services. <a href=”https://www.financemagnates.com/cryptocurrency/kraken-shuts-staking-as-a-service-in-us-amid-30m-sec-settlement/” target=”_blank” rel=”follow”>The platform has agreed to pay $30 million in
damages and suspend further staking</a>.Following
the news, Paxos announced on Monday that it is suspending the mint of new BUSD tokens.Paxos Reacts Immediately
and Stops BUSD MintInformation
published on the official Paxos blog shows that the company has decided to end
its partnership with Binance for the BUSD-branded stablecoin. As of 21 February
2023, the platform will suspend the issuance of new stablecoins, as the New
York Department of Financial Services (NYDFS) recommended. <a href=”https://www.financemagnates.com/cryptocurrency/stablecoin-issuer-paxos-faces-nydfs-probe/” target=”_blank” rel=”follow”>There was a
separate announcement last week</a> that the NYDFS also wants to initiate
proceedings in the Paxos case.”Paxos
Trust, a regulated institution overseen by the NYDFS and audited by a top-four
accounting firm, will continue to manage BUSD dollar reserves. All BUSD tokens
issued by Paxos Trust have and always will be backed 1:1 with US
dollar-denominated reserves, fully segregated and held in bankruptcy remote
accounts,” the company explained.<blockquote class=”twitter-tweet”>1/ This morning, Paxos announced it will halt minting new <a href=”https://twitter.com/hashtag/BUSD?src=hash&ref_src=twsrc%5Etfw”>#BUSD</a> tokens effective February 21. Read the full press release from Paxos here: <a href=”https://t.co/jXZY1ak8DR”>https://t.co/jXZY1ak8DR</a>— Paxos (@PaxosGlobal) <a href=”https://twitter.com/PaxosGlobal/status/1625091554951004161?ref_src=twsrc%5Etfw”>February 13, 2023</a></blockquote>BUSD tokens
already issued will continue to be backed by Paxos and exchangeable until at
least February next year. New and existing customers of the company will be
able to exchange their USD or BUSD funds for USDP, a Paxos-issued regulated
<a href=”https://www.financemagnates.com/terms/s/stablecoin/” class=”terms__secondary-term” id=”e84b040e-4d12-499b-99bf-8ba75ea058ca” target=”_blank”>stablecoin</a> backed by the dollar.Watch the recent FMLS22 panel on forex and crypto trends in 2023.Binance CEO Reassures That
‘Funds Are Safu'Moments
after Paxos published the statement, the CEO of <a href=”https://www.financemagnates.com/tag/binance/” target=”_blank” rel=”follow”>Binance </a>took to Twitter, where
he assured users that funds belonging to them were safe. He confirmed Paxos’
earlier words suggesting that the company would continue to operate the BUSD
and manage redemptions.<blockquote class=”twitter-tweet”><a href=”https://twitter.com/hashtag/BUSD?src=hash&ref_src=twsrc%5Etfw”>#BUSD</a>. A thread. 1/8In summary, BUSD is issued and redeemed by Paxos. And funds are <a href=”https://twitter.com/hashtag/SAFU?src=hash&ref_src=twsrc%5Etfw”>#SAFU</a>!— CZ 🔶 Binance (@cz_binance) <a href=”https://twitter.com/cz_binance/status/1625067484368740353?ref_src=twsrc%5Etfw”>February 13, 2023</a></blockquote>However,
the market capitalization of the BUSD will shrink due to ongoing regulatory
actions, and the exchange will look for solutions using stablecoins that are
not based on the US dollar, CZ added.It should
be recalled that the BUSD is the main asset for many of the margin trading
pairs used on Binance. If the court does indeed recognize stablecoin as a
security, it will have a huge impact on the industry and force Binance to carry
out significant remodelling of its product offering.The news
caused a momentary drop in the BUSD stability, with the price briefly dropping
to below 0.9990. It was the strongest deviation from the $1 peg since the first
half of January. However, the broad cryptocurrency market has so far not
received the news negatively, with Bitcoin losing only 0.5% and moving just
under $22,000.