New York’s chief financial regulator said on Monday it has ordered the firm behind Binance’s stablecoin to stop issuing the token after finding it could not do so in a “safe” manner, in a blow to the world’s biggest crypto exchange.
The New York Department of Financial Services (NYDFS) said in consumer alert it has ordered Paxos Trust Company to stop minting Binance USD, citing “unresolved issues” in Paxos’ oversight of its relationship with Binance.
An NYDFS spokesperson later told Reuters via email that Paxos violated its obligations for “tailored, periodic risk assessments” and due diligence checks on Binance and Binance USD customers needed to stop “bad actors from using the platform.”
Paxos said in a statement that it would stop issuing new Binance USD, which is backed by traditional cash and U.S. Treasury bills, from Feb. 21, but would continue to support and redeem the tokens until at least February 2024.
Stablecoins, digital tokens typically backed by traditional assets that are designed to hold a steady value, have emerged as one of the key cogs in the crypto economy. They are used for trading between volatile tokens like bitcoin and, in some emerging economies, as a means to protect savings against inflation.
The NYDFS move represents a setback to Binance’s efforts to gain market share from larger stablecoins rivals such as Tether and USD Coin, analysts said. The loss the New York-regulated status offered by Paxos may also hurt Binance’s appeal to larger investors seeking, they said.
“It is a big setback for Binance,” said Ivan Kachkovski, FX and cry
pto strategist at UBS. “It remains to be seen whether (and when) Binance will be able to find a U.S.-based partner for its stablecoin. The latter appears crucial in the wake of U.S. regulation on stablecoins that is coming sooner rather than later.”
Courtesy Reuters. By Tom Wilson and Elizabeth Howcroft. Full article available here.