Bloomberg reports that a few months before the imposition of a ban on the issuance of Paxos-Binance stablecoins, Circle filed a complaint against a competitor with regulatory authorities.
In late 2022, one of the largest stablecoin issuers, Circle Internet Financial, filed a complaint with the New York Department of Financial Services (NYDFS) against Paxos Trust, which regulates stablecoin issuers in New York State. Circle alerted the watchdog to the issues its team found and argued that Binance and Paxos do not have sufficient reserves to support Binance USD (BUSD) stablecoins.
Part of the crypto community suggests that Circle was forced to take action by the discriminatory policy of Binance, which introduced a forced auto-conversion of USD Coin (USDC) to BUSD in 2022, ostensibly in order to increase liquidity and capital efficiency.
Binance’s decision hurt the competitor. As a result, Circle, the USDC stablecoin issuer, reported that amid the default of FTX and the automatic conversion of USDC to BUSD on the Binance exchange, the company’s losses amounted to about $3 billion.
Following an investigation into Circle’s complaint against Paxos-Binance on Monday, February 13, the NYDFS ordered Paxos to stop issuing BUSD stablecoins and interacting with Binance. The regulator drew the attention of Paxos to the fact that the current license only provided for the issuance of BUSD on the Ethereum blockchain and did not involve the conversion of BUSD to the version on BNB Chain.
Paxos complied with the requirement of the regulator, and also announced the termination of cooperation with Binance and the release of new BUSD. Paxos has burned more than 400 million BUSD since executing the order to stop using Binance stablecoins (BUSD).
The US Securities and Exchange Commission (SEC) has sued Paxos, alleging that the BUSD stablecoin is an unregistered security. The Office of the Comptroller of the Currency (OCC) has also asked Paxos to withdraw its application for a banking license.
