Even though stablecoins continue to drive the crypto industry, they aren’t far removed from scandals and controversies. There are mounting concerns regarding BUSD, the stablecoin issued by Paxos. The firm no longer does so, and vast amounts of BUSD have been converted to USD and
The cryptocurrency industry will lose one of its leading stablecoins by market cap. There have always been some concerns over Binance USD, or BUSD. The currency is issued by Paxos – a regulated and licensed provider – but mainly serves the Binance ecosystem. That includes the world’s biggest trading platform Binance, which also “merged” various other stablecoins to “force” users to rely on BUSD.
Since that decision, it was a matter of time until it took another curious turn. A few days ago, Paxos was forced to stop issuing Binance USD tokens by the NYDFS. It isn’t the first time a stablecoin issuer has faced regulatory scrutiny, nor will it be the last. However, it doesn’t happen often that they must halt the issuance of that token immediately.
Following the order by the NYDFS, over $400 million in BUSD was burned. Burning these tokens refers to holders converting the stablecoin into either US Dollars or Paxos’ own stablecoin, the Pax Dollar. The USDP stablecoin is one of the less popular offerings, despite a market cap of nearly $870 million. However, its trading volume rarely tops $30 million, confirming it has reduced liquidity.
Over $400 million $BUSD was burned in less than 20hrs as the New York Department of Financial Services ordered Paxos to stop issuing BUSD
According to WSJ, "BUSD will continue to be redeemable through at least February 2024 for U.S. dollars or Paxos' own stablecoin, Pax Dollar." pic.twitter.com/cpU7jiEG5M
— Nansen 🧭 (@nansen_ai) February 14, 2023
Data by Nansen confirms the outflow of BUSD in recent days. Paxos has not issued new tokens since February 4th, yet the Treasury address notes high inflows from people looking to exit their position. That doesn’t mean the Binance-oriented stablecoin will disappear completely. However, it will no longer be issued by Paxos.
The initial investigation started due to concerns over the relationship between Paxos and Binance. That only applies to Paxos-issued BUSD, yet they are the only entity legally allowed to create the supply for this currency. In addition, Paxos is the sole custodian of the USD reserves used for that stablecoin.
Users should be aware there is also a Binance-peg BUSD. The latter one is not issued by Paxos nor regulated by the NYDFS. Binance can mint Binance-Peg BUSD tokens on multiple networks (BNB Chain, Polygon, and Avalanche) pegged to BUSD in a 1:1 ratio. It appears those will become more prevalent as the fiat-backed BUSD supply can no longer increase.
Another option is for Binance to find a new stablecoin issuer. However, it seems unlikely anyone would step up to the plate, given the current NYDFS scrutiny.
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