New York Financial Services Department: Binance-Peg BUSD not yet authorized

On February 14, the New York State Department of Financial Services (NYDFS) officially explained that: “The department has ordered Paxos to stop casting the BUSD issued by Paxos, because Paxos has several unresolved problems in the supervision of its relationship with Qian’an in respect of the BUSD issued by Paxos. In response, on February 13, 2023, Paxos informed the customer of its intention to end the BUSD relationship with Qian’an.”

Interpretation of this information:

The New York State Department of Financial Services (NYDFS) has ordered Paxos, a blockchain-based financial infrastructure provider, to stop issuing the BUSD (Blockchain USD) stablecoin due to unresolved issues with its relationship with Qian’an, a Chinese company that works with Paxos. BUSD is a stablecoin pegged to the US dollar, and its value remains relatively stable even as the cryptocurrency market fluctuates. As a regulated stablecoin, BUSD is utilized by cryptocurrency investors as a way to move funds between exchanges and wallets without experiencing the volatility inherent in other cryptocurrencies such as Bitcoin and Ethereum.

The order issued by NYDFS is a warning to Paxos that it needs to improve its relationships with third-party service providers, especially those based in other countries, to keep its regulatory compliance protocols in check. This is a crucial aspect of ensuring that Paxos has control over the BUSD that it issues and can verify that the currency remains 100% backed by the US dollar.

Paxos has taken this warning seriously, and on February 13, 2023, it officially announced its intentions to terminate its relationship with Qian’an in response to the NYDFS order. The company understands the importance of complying with regulatory requirements, especially since its success as a financial infrastructure provider largely depends on its reputation as a reliable and compliant entity. Paxos will likely seek out another reliable partner to ensure the continuity of its BUSD service.

The NYDFS order serves as a reminder to all regulated stablecoin issuers that compliance is of utmost importance. Whether or not the problems between Paxos and Qian’an are indeed more significant than what is currently known remains to be seen. Nevertheless, the NYDFS is taking proactive measures to ensure that regulated stablecoins such as BUSD remain safe, secure, and fully backed. This is necessary to maintain the trust of cryptocurrency investors, who have been increasingly utilizing stablecoins such as BUSD in recent years.