Paxos Under Investigation by New York Regulator for Stablecoin Issues

13. February 2023

• The New York Department of Financial Services (NYDFS) is investigating stablecoin issuer Paxos.
• Paxos’ stablecoins include the Pax dollar (USDP) and Binance USD (BUSD).
• NYDFS has issued guidance for asset-backed stablecoins, following the collapse of the terraUSD/luna ecosystem.

Investigation into Stablecoin Issuer Paxos

The New York Department of Financial Services (NYDFS) is investigating stablecoin issuer Paxos. The scope of the crypto-related investigation is not yet clear, but NYDFS has issued guidance for asset-backed stablecoins, following the collapse of the terraUSD/luna ecosystem.

Paxos’ Stablecoins

Paxos’ stablecoins include the Pax dollar (USDP) and Binance USD (BUSD), a Binance-branded stablecoin offered through a white-label service. The company holds a virtual currency license – commonly referred to as BitLicenses – issued by NYDFS, as well as a provisional bank charter from the U.S Office of the Comptroller of the Currency in 2021.

Rumors Regarding OCC Application Withdrawal

Recently there have been rumors that suggest that U.S Office of the Comptroller of the Currency may ask it to withdraw its application for a full banking charter, which Paxos has denied. However, an ongoing investigation by a state regulator suggests that this may be under closer scrutiny than its peers may be facing.

Stablecoin Guidance from NYDFS

In June 2020, NYDFS published guidance directed at stablecoin issuers to ensure their stablecoins are fully backed with assets segregated from their funds and regularly attested to by auditors or other third parties. This precautionary measure was implemented after TerraUSD/Luna collapsed in order to prevent similar situations in future cases.

Conclusion

Overall, Paxos is currently under investigaton by NYDFS due to its involvement with certain types of crypto assets such as USDP and BUSD coins. The agency’s recent guidance on asset-backed stablecoins serves as an indication that they are taking steps towards ensuring similar collapses do not happen again in future cases involving cryptocurrency or digital assets managed by companies like Paxos .