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CZ Warns of ‘Profound Impacts’ on Crypto
Paxos Global has been ordered by New York regulators to stop minting new BUSD stablecoins and faces a potential lawsuit from the U.S. Securities and Exchange Commission, according to a pair of news reports.
Paxos said in a press release “it will end its relationship with Binance for the branded stablecoin BUSD” and cease minting BUSD Feb. 21, in coordination with New York Department of Financial Services (NYDFS).
In a Twitter thread, Binance CEO Changpeng Zhao (CZ) said the cessation of minting would cause BUSD’s market cap to decrease over time.
Assuring users that BUSD funds were “SAFU,” CZ said the centralized exchange would continue to support BUSD for the foreseeable future but that as users migrate away from BUSD, Binance would adjust its products accordingly, i.e. moving away from using BUSD as the main trading pair.
2/ We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS).
— CZ 🔶 Binance (@cz_binance) February 13, 2023
Paxos is regulated by NYDFS.
BUSD is a stablecoin wholly owned and managed by Paxos.
Paxos is the issuer of BUSD, a 1:1 USD-backed stablecoin on the Ethereum blockchain. In turn, the Binance centralized exchange maintains other versions of BUSD on other blockchains, pegged to the Ethereum coin. Paxos’ Ethereum BUSD is regulated by the State of New York and is required to backed by assets 1:1.
In the press release, Paxos confirmed BUSD was fully backed with U.S. Dollar-denominated reserves in segregated, bankruptcy remote accounts. Paxos said the BUSD decision will not impact its other products including the USDP stablecoin and Pax Gold token.
“BUSD will remain fully supported by Paxos and redeemable to onboarded customers through at least February 2024. New and existing Paxos customers will be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a regulated US dollar-backed stablecoin also issued by Paxos Trust,” according to the press release.
According to a “Consumer Alert” published by NYDFS, “DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance through Paxos-issued BUSD.”
Interestingly, the NYDFS statement stipulates the distinctions between Paxos-issued BUSD on Ethereum and Binance’s versions on other blockchains.
“It is important to note that the Department only approved the Paxos-issued BUSD on the Ethereum blockchain. The Department has not authorized Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos,” according to NYDFS.
According to reports appearing in the Wall Street Journal, citing unnamed sources, SEC enforcement staff issued a letter to Paxos known as a Wells notice that informs people or companies of a possible enforcement action. According to the Journal, the letter alleges that BUSD is an unregistered security.
The report states it is unclear whether the potential enforcement action will materialize (it still must be approved by the five SEC commissioners) or if it specifically pertains to Paxos’ issuance of BUSD, listing of BUSD or both.
CZ said he did not have information about the alleged SEC lawsuit other than what had appeared in news reports. He said he did not understand how a stablecoin could be considered a security, but that if it were ruled to be so by U.S. courts, “it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.”
6/ "IF" BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.
— CZ 🔶 Binance (@cz_binance) February 13, 2023
In response to a user’s comment, CZ said Binance is “exploring” other stablecoin issuers and non-USD based stablecoins.
We are exploring others, and non-USD based stablecoins.
— CZ 🔶 Binance (@cz_binance) February 13, 2023
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