According to reports, the New York Department of Financial Services (NYDFS) is investigating Paxos Trust Company, the stablecoin issuer based in New York that is responsible for Binance USD (BUSD) and Paxos Dollar (USDP).
The investigation follows reports suggesting that the New York regulator plans to increase its consumer protection efforts this year, although the reason for the investigation has not been made public.
A department representative stated that the NYDFS is actively working to protect consumers, but declined to comment on ongoing investigations. He further revealed that the department keeps in touch with institutions that are subject to regulation in order to identify the risks and vulnerabilities that the current volatility in the cryptocurrency market poses to both customers and the institutions themselves.
Paxos and regulatory bodies
In 2015, the NYDFS granted Paxos a “BitLicense,” allowing businesses to legally conduct digital currency operations in New York state.
Paxos recently denied allegations that the Office of the Comptroller of the Currency (OCC) in the U.S. may require Paxos to withdraw its application for its full banking license, despite the company only gaining preliminary approval in April 2021. Additionally, as stated on Paxos’ website, the BUSD and USDP token reserves are fully backed by U.S. dollars and U.S. Treasury bonds.
If the investigation’s reports are accurate, It would not be the only investigation initiated by the NYDFS in the past 12 months.
On January 4, Coinbase Global U.S. and the New York regulator agreed to a $100 million settlement after it was discovered that they had neglected to examine over 100,000 questionable transactions made by users who had registered accounts without doing adequate background checks.
The Terra LUNA ecosystem and its botched algorithmic stablecoin TerraClassicUSD (USTC) crashed in May 2022, prompted the NYDFS to produce a stablecoin guideline report to ensure stablecoin issuers fully back their assets and attest frequently.
Paxos and Stablecoins
Since entering into a partnership with Binance in September 2019, Paxos has released BUSD, a stablecoin that is collateralized by U.S. Dollars. With a current market capitalization of more than $16 billion, it is the third-largest stablecoin.
Additionally, Paxos is the creator of the 2018-launched Paxos Dollar (USDP) and is currently the sixth largest stablecoin with a market cap of roughly $875 billion, according to CoinGecko. It is also the creator of PAX Gold (PAXG), an Ethereum token backed by gold.
Along with the establishment of Paxos in 2012, the company is also known for creating the digital asset exchange, itBit.
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