Circle, a rival stablecoin issuer of Paxos, blew the whistle on the latter’s cryptocurrency offering to New York regulators, fresh reports have revealed.
According to a Bloomberg report on Monday, Circle tipped off the New York Department of Financial Services (NYDFS) in the autumn of last year. Citing people familiar with the matter, it alleged to regulators that Binance failed to show sufficient reserves to support Binance USD (BUSD) tokens issued from the competitor platform.
The news comes after Reuters received comment from an NYDFS spokesperson revealing Paxos did not issue BUSD in a “safe and sound” manner.
This allegedly violated obligations to conduct “tailored, period risk assessments” and due diligence on Binance and Paxos-issued BUSD customers to prevent “bad actors from using the platform,” the report read. The NYDFS later ordered Paxos to halt minting BUSD due, citing its ties to Binance.
Paxos later issued a statement that it had stopped minting BUSD tokens, adding that US dollar-denominated reserves backed all current BUSD tokens.
The company added: “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.”
The news comes after the US Securities and Exchange Commission (SEC) launched a lawsuit against Paxos, accusing the latter of issuing BUSD as an unregistered security.
Cryptocurrency exchange Kraken and Ripple Labs, the firm behind the Ripple (XRP) token, were also slapped with unregulated securities accusations over the last few months.
News of the lawsuits has triggered backlash from the crypto community and prompted Kraken to remove its $30 million USD staking platform for cryptocurrencies.
