Matrixport’s executives believe the regulatory enforcement on BUSD will not impact all stablecoins. Moreover, according to the executive, other issues surround the crackdown.
The United States regulators are striking hard on some crypto firms, including Kraken, Coinbase, and Paxos. In addition, the recent crackdown on Binance USD stablecoin might increase uncertainty in the crypto space as many wonders if the crackdown spreads to other stablecoins.
The Current Crackdown Linked to Issuer Management Problems
The New York Department of Financial Services (NYDFS) ordered the issuer of BUSD, Paxos Trust Company, to stop issuing the BUSD stablecoin. The action was based on unresolved problems regarding the issuer’s oversight in its relationship with the Binance crypto exchange.
Paxos would still handle the redemption of the existing stablecoin tokens from users till 2024. The NYDFS confirms that it will continue to monitor the firm’s approach through the redeeming process.
The head of research at Matrixport, a crypto-financial service firm, reacted to the brewing tension in the crypto industry following the regulators’ crackdown on BUSD.
He stated that the enforcement action on BUSD is not a target against all stablecoins. The executive thinks that the blockchain firm Paxos could have been flexible in its management of BUSD. So, the main problem is not generally revolving around stablecoins.
Further, Thielen explained that Paxos failed to comply with the primary management roles as the issuer of the stablecoin. For example, according to him, the firm couldn’t conduct tailored and periodic assessments of issued BUSD customers. Also, there wasn’t any due diligence in the firm’s management.
Notably, the United States Securities and Exchange Commission (SEC) sent a notice to Paxos alleging its sales of unregistered security earlier this month. In addition, the regulator plans to sue Paxos over its activities with BUSD.
Regulators Doubt The BUSD Backed Reserves
According to Thielen, the stablecoin has issued about $11 billion on the Ethereum blockchain. Also, about $4.8 billion of Binance-peg BUSD tokens are on the BNB Smart Chain (BSC). Notably, Binance offers a token-pegged service that locks BUSD on Ethereum. However, Binance-Peg BUSD is on BNB Chain and several other blockchains like Polygon and Avalanche.
The Matrixport executive explained that the NYDFS might be worried that the $4.8 billion are not fully backed. There could be issues with the supposed 1:1 backing for the BUSD stablecoin. Also, he mentioned that part of the reasons for the crackdown on BUSD could be from the incident in January when Binance joined its customers’ funds with collateral.
On its part, Paxos confirmed its readiness to comply with the order, as it will stop BSUD issuance by February 21. Also, the blockchain firm assured users that the stablecoin has a 1:1 US dollar backing on its reserves. Furthermore, it stated that the reserves are fully segregated and kept in bankruptcy remote accounts.
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