BUSD, Paxos, and the Recent Scrutiny of Paxos
Zach Anderson Feb 16, 2023 09:15
Matrixport's director of research believed Paxos' BUSD supervision was too lax, prompting regulatory attention. Stablecoins are not the goal.
Financial services using cryptocurrencies The head of research at Matrixport is of the opinion that the current investigation of Paxos and its Binance USD (BUSD) token is not an assault on stablecoins in and of itself.
Matrixport's Markus Thielen noted in a study that was published on February 14 that the BUSD issuer, Paxos Trust Company, may not have been as severe as it should have been with its control of the token.
In addition, he said that it "does not seem to be about stablecoins" as the root of the problem.
According to Thielen's argument, "Paxos had failed its commitment to undertake targeted, periodic risk assessment and due diligence of Binance and Paxos-issued BUSD consumers." Paxos is the company that issues the BUSD tokens.
"as a consequence of multiple outstanding problems connected to Paxos' management of its connection with Binance," the New York Department of Financial Services (NYDFS) ordered Paxos to cease the issuing of BUSD on February 13th.
Paxos has also just disclosed that the United States Securities and Exchange Commission (SEC) sent a Wells notice to the stablecoin issuer on February 3, for the alleged failure of the issuer to register the offering in accordance with federal securities laws.
According to Thielen, BUSD has issued $11 billion worth of tokens on Ethereum, but there is also $4.8 billion worth of Binance-Peg BUSD Tokens on the BNB Smart Chain. Binance offers a service for pegged tokens in which BUSD is locked on Ethereum and Binance-Peg BUSD is released on BNB Chain in addition to other blockchains such Avalanche and Polygon.
"It seems that NYDFS is now apprehensive that the $4.8 billion may not be fully supported or have had difficulty with being 1:1 backed," he added. "This looks to be a concern on the part of NYDFS."
Paxos, on the other hand, said as recently as February 13 that "BUSD tokens created by Paxos Trust have and always will be backed 1:1 by US dollar-denominated reserves, completely segregated and stored in separate distant accounts." Paxos made this claim.
Thielen points out that the event on January 24 in which Binance mingled client money with collateral might have also been a catalyst for some of the regulatory steps that have been taken.
Some people are still under the impression that other stablecoins might be in danger as a result of the recent steps taken against BUSD.
Paxos has asserted as of late that "there are categorically no further complaints against Paxos," in addition to the ongoing controversy surrounding BUSD.
"USDC is a regulated dollar digital currency that was issued as stored value in accordance with United States money transfer legislation," claims Circle.
"Facts and circumstances in any type of regulatory action like this are all different, as are the structural and regulatory considerations with each of the cryptocurrencies that are in circulation around the world," Disparte added. "Facts and circumstances in any type of regulatory action like this are all different."
However, Thielen has emphasized to those in the sector that they need not be excessively anxious about what the future holds for BUSD.
“Binance has shot itself a little bit in the foot here, but they are working on it and it should be rectified. The question is, "Should we truly be worried?" Thielen stated.
"I don't believe that's the case. Is the peg going to break? NO. We are no longer in a bear market, which is characterized by investors being concerned about potential losses; while, in bull markets, investors are more focused on potential gains.
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