SEC Crackdown on Paxos not an Attack on Stablecoins- Matrixport Exec

Matrixport’s head of research, Markus Thielen has made a statement that the recent investigation into Paxos and its BUSD token is not an outright criticism of stablecoins. He claimed that Paxos Trust Co may not have been stringent enough in its oversight of the token.

Thielen alleged that Paxos had violated its obligation to perform systemic, focused risk assessments and due diligence on Binance and Paxos-issued BUSD clients. He also pointed out that BUSD has issued $11 billion on Ethereum.

In addition, he said the ‘peg’ version has made BUSD available at the value of $4.8 billion on the Binance Smart Chain and accounts for roughly a third of the BUSD issuance now.

He went on to say, that the New York State Department of Financial Services (NYDFS) is now concerned that the $4.8 billion might not be sufficiently guaranteed or has had difficulty with being 1:1 backed. Notably, the NYDFS has opened a probe into the firm over regulatory issues.

Recent statements from Paxos, however, state that “BUSD tokens produced by Paxos Trust have and always will be backed 1:1 with US dollar-denominated assets, appropriately segregated and stored in bankruptcy remote accounts.”

Meanwhile, Paxos has admitted to receiving a notice from the US Securities and Exchange Commission (SEC), alleging that the BUSD token is an unregistered security.

The Relationship Between Paxos and Binance

Binance and Paxos entered into a partnership where Paxos, a regulated financial institution, holds the dollars that back the BUSD stablecoin and issues them on behalf of Binance. Binance acts as the primary distributor of BUSD, making the stablecoin available for purchase and use on its exchange platform and other partner platforms.

When users redeem BUSD for USD, the firm will be responsible for processing the redemption and returning the corresponding amount of dollars. 

Based on Paxos’ ongoing regulatory issues in relation to the BUSD token, a recent report from PeckShieldAlert revealed that Binance has experienced a spike in withdrawals from customers since the announcement.

Similarly, the BUSD token has seen significant redemptions, with 342 million BUSD burned in the last 24 hours.