Paxos to Stop Minting Stablecoin BUSD Following Regulatory Action

CORRECTION (Feb. 13, 2023, 16:10 UTC): Corrects that Paxos said it would cease issuing Binance USD at the direction of the New York Department of Financial Services, not the Securities and Exchange Commission.

Stablecoin issuer Paxos will stop minting new Binance USD (BUSD) tokens at the direction of the New York Department of Financial Services (NYDFS), with the news coming just after a report of the threat of legal action from the U.S. Securities and Exchange Commission (SEC).

It was reported on Sunday that the SEC intended to sue Paxos for selling BUSD as an unregistered security. This came only days after CoinDesk reported that Paxos was under investigation by NYDFS.

BUSD is a Binance-branded stablecoin issued and managed by Paxos. Following the news of the SEC's legal action, Binance issued a statement that it would be reviewing projects in uncertain markets where regulatory uncertainty could cause detriments to its users.

NYDFS said that it had instructed Paxos to cease minting BUSD due to several unresolved issues related to Paxos’ oversight of its relationship with Binance. Paxos said it is ending its relationship with Binance for BUSD.

"The Department is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols," NYDFS said in a statement.

"All BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts," Paxos said in a statement on Monday.

Following Sunday's news, some $52 million of BUSD were sent to exchanges in a 24-hour period, as per data by CryptoQuant, indicating a desire by users to turn them into fiat or other stablecoins.

In the past 24 hours, BNB Chain’s native token slid over 7% while BUSD saw massive inflows to crypto exchanges.

Read more: SEC Chief Gensler Warns Crypto Firms to Comply With Rules After Kraken Shutters US Staking Program

UPDATE (Feb. 13, 11: 40 UTC): Adds statement from NYDFS and additional background.