Binance, Circle, and Paxos Receive Regulatory Scrut

It has been claimed that the New York State Department of Financial Services, often known as the NYDFS, received a complaint about Binance’s reserves from the stablecoin issuer Circle prior to the exchange’s crackdown on BUSD.

Circle reportedly informed the New York Department of Financial Services (NYDFS) in an October 2022 complaint that Binance’s reserves were inadequate to maintain the exchange’s tokens, presumably including the stablecoin Binance USD. The story was published on February 13 by Bloomberg (BUSD). The information was purportedly discovered by Circle’s staff via the use of blockchain data, as revealed by a source who is acquainted with the situation.

Circle’s activities took place prior to the United States Securities and Exchange Commission’s preparations to bring a lawsuit against Paxos, alleging that BUSD was an unregistered security. The SEC was planning to sue Paxos on the basis that BUSD was an unregistered security. On February 13, the New York Department of Financial Services (NYDFS) announced its own regulatory action, which consisted of an order to Paxos to “cease minting Paxos-issued BUSD” and a restatement of the agency’s mandate that tokens regulated by its framework must be fully backed by cash or cash equivalents.

Paxos issued a statement on February 13 in response to the lawsuit filed by the SEC declaring that BUSD was “not a security under the federal securities laws.” The statement also included the following information: “BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts.” Regarding this matter, we want to communicate with the staff of the SEC, and if necessary, we are prepared to forcefully litigate.”

The crypto regulatory action was the most recent in the United States to target crypto businesses. On February 9, the SEC reached an agreement with Kraken to discontinue its staking services for U.S. customers. This move was the latest in a series of regulatory actions affecting crypto firms in the United States. Additionally, the financial authority is continuing to argue with Ripple in a pending litigation about XRP, in which it asserts that the coins are securities that fall under its jurisdiction.