Paxos Trust Company – the New York-based stablecoin issuer behind Binance USD (BUSD) and Paxos Dollar (USDP) – is reportedly being investigated by the New York Department of Financial Services (NYDFS).
“People familiar with the matter” told Bloomberg in a February 10 report that the exact motive behind the investigation is currently unclear.
A spokesperson for the NYDFS declined to comment on the ongoing investigation, but stated that the department generally works to protect consumers from the risks associated with investing in the cryptocurrency market:
“The department continues to be in contact with regulated entities to understand the vulnerabilities and risks to consumers and institutions themselves from the volatility of the crypto market that we are experiencing.”
Paxos has issued BUSD – a stablecoin backed by the US Dollar – since the company formed a partnership with Binance in September 2019. It is the third largest stablecoin, with a current market cap of over $16 billion.
It is also the creator of the Paxos Dollar (USDP) launched in 2018. Today it is the sixth largest stablecoin with a market cap of around $875 billion, according to CoinGecko, and is the founder of PAX Gold (PAXG), a gold-Ethereum-backed token.
The company is also behind the digital asset exchange itBit, which was launched in 2012 together with the founders of Paxos.
The NYDFS issued Paxos with a “BitLicense” in 2015, which legally allows the company to conduct digital currency-related activities in the state of New York.
Paxos recently denied rumors that the US Office of the Comptroller of the Currency (OCC) may order Paxos to withdraw its application for a full banking charter, although the company only received preliminary approval in April 2021.
To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.
— Paxos (@PaxosGlobal) February 8, 2023
Paxos also states on its website that its BUSD and USDP token reserves are backed entirely in US Dollars and USTreasuries.
related: New York State issued guidelines for banks that want to engage in activities with crypto
If the investigation reports are true, this would not be the first the NYDFS has initiated in the past year.
Coinbase Global US reached a $100 million settlement with New York regulators on January 4 after they found that they failed to look through about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.
Shortly after the Terra LUNA ecosystem and the failed algorithmic stablecoin TerraClassicUSD (USTC) collapsed in May, 2022, the NYDFS issued a stablecoin guidance report to ensure stablecoin issuers fully return their assets and prove it regularly.
Cointelegraph reached out to Paxos and Binance for comment on the matter but did not receive an immediate response.