Stablecoin Issuer Paxos Faces NYDFS Probe

Paxos Trust Co., the issuer of Binance’s stablecoin, is facing an investigation by the New York State Department of Financial Services (NYDFS), one of the most stringent state regulators in the United States, Bloomberg reported.

NYDFS Probes Paxos

There is no official confirmation on the investigation either from the regulator or the stablecoin issuer. The extent of the scope of the investigation is also unclear.

“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,” a regulatory spokesperson told the publication.

Apart from its partnership with Binance, Paxos also issues its own stablecoin, Pax Dollar (USDP), which has a market value of $859 million. Binance’s BUSD, issued in partnership with Paxos, has a market value of $16 billion and is the third-largest USD-pegged stablecoin in terms of market share.

“BUSD is a 1-to-1 backed stablecoin that is one of the most transparent stablecoins in existence,” Binance said in a statement, adding that it is closely monitoring the reports of the alleged investigations.

However, the stablecoin industry cannot clear its taint from controversies. Tether, the largest USD-pegged in circulation, is blamed for not maintaining an accurate fiat reserve, while the collapse of Terra Luna rattled the crypto industry last year.

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A Major Stablecoin Issuer

Paxos operates in New York with the much coveted BitLicense obtained from the NYDFS, the same regulator that has opened the reported probe. Last November, the company gained a Major Payments Institution (MPI) license from the regulator in Singapore to bolster its Asian presence.

On top of that, the New York-based blockchain infrastructure company received preliminary approval for a banking charter in April 2021. Though there were rumors that the US Office of the Comptroller of the Currency (OCC) was considering ordering Paxos to withdraw its application for a full banking charter, the company denied them.

To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.

The NYDFS is considered to be one of the strict cryptocurrency regulators. Last month, it issued guidance, ordering all crypto companies to separate funds belonging to the customers and their own. In addition, it mandated licensing for banks before their direct or indirect engagement with cryptocurrency-related activities.

Recently, Coinbase settled with the New York state regulator for $100 million for charges of anti-money laundering (AML) provision breaches. The exchange agreed to pay $50 million as a penalty and invest another $50 million over the next two years to ramp up its compliance efforts.