NEW YORK – Paxos Trust, the issuer of a Binance-branded token that ranks as the third-largest stablecoin, is being investigated in the United States in the latest regulatory escalation to hit the cryptocurrency sector.
The New York State Department of Financial Services (DFS), which regulates Paxos, has recently begun probing the firm, a person familiar with the matter said. The exact scope of the investigation is unclear.
Paxos, which also issues its own stablecoin called Pax Dollar, did not immediately respond to a request for comment. A spokesman for the regulator said it cannot comment on ongoing investigations.
Paxos, on its website, stresses consumer protection and says that reserves for both of the stablecoins it issues are held wholly in cash and US Treasuries.
Stablecoins are intended to hold a set value, for example US$1, and come in a variety of forms. Some are underpinned by a matching reserve of assets like cash and bonds.
Stablecoins have led to controversy because of past failures. The TerraUSD ecosystem, a stablecoin that relied on complex algorithms and trader incentives, suffered a US$60 billion (S$79.6 billion) wipeout last year that roiled crypto markets.
Paxos, based in New York, operates Binance’s BUSD in a partnership with the world’s biggest digital asset exchange. The token has a US$16 billion market value, making it the largest stablecoin after Tether and USD Coin, according to CoinGecko. Pax Dollar, or USDP, has a market value of US$859 million.
“BUSD is a one-to-one backed stablecoin that is one of the most transparent stablecoins in existence,” Binance said in a statement, adding that it will continue to monitor the situation with respect to Paxos.
New York requires crypto service providers to obtain a BitLicence that comes with regulatory oversight. Paxos was granted a limited purpose trust company charter by the New York regulator in 2015. The firm also offers a gold-backed virtual currency and the itBit digital asset exchange.
In January, the DFS reached a US$100 million settlement with Coinbase Global’s US unit over letting customers open accounts with insufficient background checks. BLOOMBERG
