In a recent spate of regulatory scrutiny hitting the crypto industry, Paxos, the operator of the Binance-backed stablecoin is now being investigated by U.S regulators. Although it’s still not clear which of its operations have brought it under the lens of the regulator, a Bloomberg report citing sources familiar with the matter says the New York Department of Financial Services (NYDFS) is currently investigating the crypto firm.
Aside from being the operator of the third largest stablecoin (BUSD) which has a market capitalization of over $16 billion, Paxos also has its own dollar-pegged stablecoin dubbed Paxos Dollar (USDP) which has a market capitalization of $859 million. The crypto firm is also the founder of gold-backed cryptocurrency Pax Gold (PAXG) as well as the entity behind itBit, a digital asset exchange that it launched in 2012.
Since the crypto firm is headquartered in New York, it is subjected to the regulatory guidelines of NYDFS.
Recall that the regulator issued a new set of regulatory guidelines for stablecoin issuers to ensure their assets are properly backed after the collapse of the Terra-Luna ecosystem that crippled the industry.
While the investigations have not proved any wrongdoing on the part of Paxos, it would appear that the stablecoin issuer is under closer scrutiny compared to other players.
Paxos Alleged Investigations
Notably, the news of NYDFS’ investigations follows after rumors that the U.S. Office of the Comptroller of the Currency (OCC) has asked the stablecoin issuer to withdraw its application for a full banking charter.
However, Paxos has denied the rumors and added that it has continued to constructively work with the regulator. It had earlier received a Fintech Charter license in April 2021 that allows it to conduct services for digital assets including other agent services.
Meanwhile, Binance has assured that its BUSD is one of the most transparent stablecoins in the industry. The exchange noted that it is wholly backed in U.S dollars and U.S Treasuries adding that it will continue to monitor the situation with its partners and make comments when necessary.
Interestingly, this is not the regulator’s investigative actions in recent times. It recently fined Coinbase $50 million for allowing users to open accounts without carrying out sufficient background checks and thus violating New York’s financial services and banking laws.
As a result of the fine, the publicly traded exchange entered an agreement with the regulators to pay an additional $50 million to expand its compliance program.
