The New York State Department of Financial Services, or NYDFS, has reportedly received a complaint from stablecoin publisher Circle about Binance’s reserves ahead of its crackdown on BUSD.
According to a February 13 Bloomberg report, Circle alerted NYDFS in a fall 2022 complaint that Binance’s reserves were insufficient to support its tokens, apparently including the Binance USD (BUSD) stablecoin. People familiar with the matter said the Circle team had discovered the information through blockchain data.
Circle’s action comes ahead of plans by the United States Securities and Exchange Commission to file a lawsuit against Paxos, alleging that BUSD is an unregistered security. The NYDFS announced its own regulatory action on February 13, ordering Paxos to “stop printing Paxos-issued BUSD” and stating the requirements for tokens under its regime to be backed by cash or cash equivalents.
In a February 13 statement responding to the SEC’s lawsuit, Paxos said BUSD “is not a security under federal securities laws,” adding:
“BUSD issued by Paxos is always backed 1:1 with US dollar denominated reserves, fully segregated and held in a remote bankruptcy account. We will engage with the SEC staff on this issue and are ready to litigate if necessary.
Paxos issued the following statement on February 13. Read the full statement here: https://t.co/jbfcBAiCgf pic.twitter.com/T7k80QtKyX
— Paxos (@PaxosGlobal) February 13, 2023
related: New York financial regulator investigates Gemini over FDIC claims: Report
The crypto regulatory action is the latest in the United States to affect crypto companies as the SEC reached an agreement with Kraken to end its staking service for US users. Financial regulators also continue to engage with Ripple in a lawsuit over XRP, which claims that the token is a security.