The investigation’s exact motivation hasn’t been made public, although it has been rumored that the New York regulator will step up consumer protection operations this year.
The New York Department of Financial Services is apparently looking into Paxos Trust Company, the stablecoin issuer behind Binance USD (BUSD) and Paxos Dollar (USDP) (NYDFS).
The precise purpose of the investigation is now unknown, according to a “person familiar with the matter” who spoke to Bloomberg for a report on February 10.
The NYDFS is actively attempting to safeguard consumers from the hazards involved with investing in the cryptocurrency market, according to a department representative who declined to comment on ongoing investigations.
“The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.”
Since the company partnered with Binance in September 2019, Paxos has released BUSD, a U.S. Dollar-collateralized stablecoin. It is the third largest stablecoin, with a market valuation currently surpassing $16 billion.
It is also the innovator of the 2018-released Paxos Dollar (USDP). It is the creator of PAX Gold (PAXG), an Ethereum token backed by gold, and is currently the sixth largest stablecoin with a market worth of roughly $875 billion, according to CoinGecko.
The business founded Paxos in 2012 and is also responsible for the digital asset exchange itBit. Paxos received a “BitLicense” from the NYDFS in 2015, allowing businesses to lawfully engage in operations relating to digital currency in the state of New York.
Paxos recently denied rumors that, despite the company only receiving a preliminary approval in April 2021, the U.S. Office of the Comptroller of the Currency (OCC) may order Paxos to withdraw its application for its full banking charter.
Additionally, according to Paxos’ website, the BUSD and USDP token reserves are fully backed by U.S. dollars and U.S. Treasury bonds.
The NYDFS has launched several investigations over the past year, if reports of this one are accurate. On January 4, Coinbase Global U.S. and the New York regulator agreed to a $100 million settlement after discovering that they had overlooked around 100,000 questionable transactions made by users who had opened accounts without doing adequate background checks.
The Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) imploded in May 2022, and soon after, the NYDFS released a stablecoin guideline report to make sure stablecoin issuers adequately backed their assets and routinely attested.