Paxos has been ordered by the New York regulator to stop minting Binance stablecoins

Chad Cascarilla, CEO of Paxos.

Adam Jeffrey | CNBC

Cryptocurrency firm Paxos will stop issuing new stablecoins Binance USD, or BUSD, under the direction of the New York State Financial Services Commission, Binance founder Changpeng Zhao said on Monday. Paxos’ own stablecoin was not affected.

The New York State Department of Financial Services issued the order “as a result of multiple unresolved issues related to Paxos’ oversight of its relationship with Binance,” the regulator said in a consumer alert Monday.

“We have been informed by Paxos that they have been ordered by the New York Treasury Department to stop minting new BUSD,” Zhao said on Twitter. BUSD is Binance’s dollar-pegged stablecoin, with each BUSD hypothetically valued at one dollar, and is used on Binance to trade cryptocurrencies, including ether and bitcoin.

“Effective February 21, Paxos will cease issuing new BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services,” Paxos said in a statement, adding that it “represents its relationship with Binance for the brand would end stablecoin BUSD.”

Binance did not immediately respond to requests for comment.

Paxos’ BUSD product is based on the Ethereum blockchain and is backed one-to-one by US Treasuries and US Treasury reverse repurchase agreements (repos), with Paxos reporting around $16 billion in holdings as of Jan. 31. Paxos’ BUSD product is related to but separate from Binance’s self-issued Binance-pegged BUSD.

Binance’s self-issued BUSD, which is not directly regulated by NYDFS, will be independently packaged and issued by the crypto exchange on blockchains outside of Ethereum. In other words, Binance can take a single Paxos-issued BUSD, create an analogous BUSD on another blockchain (such as Binance’s own blockchain) and freeze a corresponding Paxos-issued BUSD.

“The Ministry has not authorized Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos,” NYDFS said.

The move is the latest in an escalating regulatory effort to rein in the once-running crypto industry. Last week, the Securities and Exchange Commission reached a settlement with crypto exchange Kraken over allegations of unregistered offerings and sales related to Kraken’s crypto staking platform.

“This action does not impact our ability to continue serving new or existing customers, our continued commitment to expand our workforce, or fund our business objectives,” the Paxos statement said.

In 2014, New York became the first state to introduce licensing for crypto-related businesses. Paxos is one of over two dozen companies that have secured a BitLicense. In January, NYDFS took action against another regulated entity, Coinbase.

Two other New York state regulated entities, Genesis Global Trading and crypto exchange Gemini, have been accused by the Securities and Exchange Commission of being involved in unregistered securities offerings and sales in connection with a joint crypto lending program.

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