New York Regulator Launches Investigation into Stablecoin Issuer Paxos – Binance BUSD in Trouble?

Paxos, a prominent player in the stablecoin market that issues Binance USD (BUSD) and the native Paxos stablecoin USDP, is reportedly under investigation by the New York Department of Financial Services (NYDFS). 

This could be what has drawn attention from authorities, as the SEC forced Kraken this week to close staking facilities.

Another project that could be raising eyes is Paxos’ gold-backed cryptocurrency PAXG. A real-world asset (RWA) token that stores gold in Brinks Vault, London for investors.

PAXG, BUSD, and USDP all remain pegged at the time of writing.

Investigation into Paxos follows application for Full Banking Charter

The investigation into Paxos comes following the company’s application for a full banking charter. Despite the reported concerns among central finance authorities, the New York-based blockchain infrastructure company has established itself as a leader in the industry. 

Paxos operates in New York with the coveted BitLicense obtained from the NYDFS and has also gained a Major Payments Institution license from the regulator in Singapore to boost its presence in Asia. 

Despite rumors that the US Office of the Comptroller of the Currency (OCC) was contemplating requiring Paxos to withdraw its application for a full banking charter, the company has categorically denied such claims.

To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.

— Paxos (@Paxos) February 8, 2023

What we do know is that the OCC provided a provisional banking charter to Paxos in 2021. Suggesting the authority isn’t completely against the idea of licensing the issuer properly.

Indeed, after the implosion of the Luna ecosystem because of TerraUSD, the NYDFS published guidelines for stablecoin issuers to follow. Paxos likely observed these requests as part of ongoing efforts to secure its full banking charter.

Yet, as regulators seem poised to move on legislating the crypto industry this year – markets are on edge, especially as Paxos operates BUSD at a time when uncertainty clouds the Binance exchange.

An expanded investigation into the premier exchange’s flagship stablecoin could spell big trouble for the industry.