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The crypto company and stablecoin issuer Paxos is under investigation by a New York-based regulatory body.
NYDFS Launches Investigation Against Paxos
The New York Department of Financial Services (NYDFS) is investigating the stablecoin issuer Paxos.
According to a spokesperson familiar with the situation,
“The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.”
Paxos is one of the issuers of the Binance-branded stablecoin, BinanceUSD (BUSD), which is the world’s third-largest stablecoin. It also issues the Pax Dollar (PUSD) stablecoin and already holds a virtual currency license, commonly referred to as BitLicenses, issued by NYDFS. It has recently partnered with Brazil’s Nubank to offer crypto trading services in the country.
In response to the news about the investigation, the Binance team released a statement claiming that BUSD is one of the most transparent stablecoins in existence, adding that it will continue to monitor the situation with Paxos.
NYFDS Looking Into Stablecoin Issuers
Although the scope of the investigation has not been disclosed, experts believe that it could be related to the NYFDS’s efforts to regulate the stablecoin market after the TerraUSD/LUNA debacle of 2022. (For context, the TerraUSD ecosystem wiped out over $60 billion from the market and is said to have started the ball rolling on the worst crypto winter experienced by the industry yet.)
In fact, according to NYFDS Superintendent Adrienne Harris, the organization was working on establishing regulatory guidelines for asset-backed stablecoins even before the collapse. The regulatory body had even published a stablecoin guideline in June, where it directed issuers to ensure that the stablecoins were fully backed by assets from existing issuer funds.
It is to be noted that on its official website, Paxos always has stressed consumer protection and has claimed that both of its issued stablecoins are backed by reserves of cash and US Treasuries.
Trouble With OCC?
There have been some rumors of trouble between the company and a federal bank regulator. The U.S. Office of the Comptroller of the Currency (OCC) had already granted the company its provisional bank charter in 2021. However, reports have claimed that the OCC is considering asking Paxos to withdraw its application for a full banking charter. Even though Paxos has denied these rumors, the news of the ongoing investigation by the state regulator does not bode well for the company. It indicates that Paxos is definitely under closer scrutiny than its peers.
The situation with NYFDS could unravel in a way similar to the recent Coinbase case, where the crypto company had to pay out $100 million to settle the NYFDS’s enforcement actions against it.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.