Circle, the issuer of stablecoin USDC, is said to have reported violations of rival Paxos and stablecoin BUSD to US authorities.
Amidst the flood of news about Paxos, the stablecoin issuer behind Binance’s BUSD, being investigated by US authorities and threatened with prosecution, reports Bloomberg Citing an insider source who claimed that rival company Circle was the one who reported Paxos to authorities.
Accordingly, in the fall of 2022, Circle filed a complaint with the New York Department of Financial Services (NYDFS), the agency that regulates both stablecoin issuers within New York state limits, asserting them. obtained evidence on the blockchain that Binance did not maintain sufficient collateral for the issued amount of BUSD.
NEW: Stablecoin giant Circle complained to a New York watchdog last year about Binance’s mismanagement of reserves for tokens https://t.co/2wB8yFFjsN
— Bloomberg Crypto (@crypto) February 13, 2023
After the verification period, the NYDFS on February 13 ordered Paxos to stop issuing new stablecoin BUSD and terminate its relationship with Binance, citing “some unresolved issues” related to oversight of BUSD, as well as delays in providing evidence and information. The regulator also said that they only licensed Paxos to issue BUSD on Ethereum, but could not manage Binance converting part of this BUSD into a version on BNB Chain.
Paxos complied with the request of the regulator, announced the termination of cooperation with Binance and stopped issuing new BUSD. However, the stablecoin company promises that their products will always be 1:1 backed by US dollars, and will continue to process customer withdrawal requests from now until February 2024.
A spokesperson for NYDFS also revealed to Reuters that the reason Paxos was warned by the New York government was because it failed to “safely and adequately” monitor its stablecoin, as well as “breached its obligation to conduct risk assessments. Periodic and due diligence on Binance and BUSD customers to prevent bad actors from using stablecoins.”
Some speculate that Circle’s reporting of misconduct by rivals Paxos and BUSD to US authorities stems from Binance’s policy since September 2022, which converts the balances of all stablecoins deposited by users. listed on the exchange into BUSD, excluding Tether (USDT). This decision affected USDC’s market share, while BUSD’s market share increased and peaked in November 2022, only to plunge back to its old level because of the wave of negative news that hit the exchange. the world’s largest cryptocurrency exchange in the following months.
Not stopping there, Paxos is also reported to have been sued by the US Securities and Exchange Commission (SEC) alleging that BUSD is a disguised security. The US Office of the Comptroller of the Currency (OCC) has also asked Paxos to withdraw its application for a banking license.
In the latest statement in response to the information sued by the SEC, Paxos confirmed that the SEC sent a Wells notice from the SEC on February 3, 2023, and responded as follows:
Paxos issued the following statement on February 13. Read the full statement here: https://t.co/jbfcBAiCgf pic.twitter.com/T7k80QtKyX
— Paxos (@PaxosGlobal) February 13, 2023
“Paxos disagrees with the SEC ruling because BUSD is not a security under federal securities laws. The SEC Wells Notice only mentions BUSD. There are no other charges against Paxos. Paxos has always put the safety of customer assets first. The BUSD issued by Paxos is always backed 1:1 by the company’s reserves of US dollars, segregated from one another and in bankruptcy protected bank accounts. We are in dialogue with the SEC on this matter and stand ready to resolve it in court if necessary.”
Immediately after it was reported that Paxos was ordered by the New York government to stop issuing new BUSD, Binance CEO Changpeng Zhao released a series of posts saying he would still support BUSD as usual, protesting against seeing this stablecoin as a securities, but acknowledges that it may consider changing the product and removing the BUSD trading pair if necessary.