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The New York Department of Financial Services on Monday ordered Paxos Trust Co., the issuer of Binance USD (BUSD), to stop creating more of Binance’s dollar-pegged stablecoin. BUSD is the third-largest stablecoin by market cap.
Paxos will still continue to manage redemptions of existing BUSD, Binance said in a statement. Binance and Paxos launched BUSD in 2019 and said the stablecoin was approved by New York’s financial regulator.
The New York financial regulator’s order came after the U.S. Securities and Exchange Commission (SEC) issued a Wells Notice against Paxos claiming its Binance USD (BUSD) is an unregistered security. Wells Notice is a letter that the U.S. SEC sends to people or firms when it is planning to bring an enforcement action.
Stablecoins issuers such as Paxos have found a steady source of income by issuing stablecoins and investing users’ cash deposits in short-term U.S. Treasuries. It has enabled companies to make more yields as the U.S. Federal Reserve continues to raise interest rates.
Moreover, the SEC action against Paxos has raised questions about whether BUSD satisfies The Howey Test. Experts have pointed out that BUSD doesn’t pass the Howey Test, and it’s not a security.
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Crypto Linked to Binance Fell After the Order
Binance Coin (BNB) price fell 7% as the New York Department of Financial Services ordered Paxos Trust to stop creating more of its BUSD token. BNB price fell below $300, with the price currently trading at $288.
Meanwhile, the market cap of BUSD has started to fall as the U.S. SEC and other regulators are reportedly planning a coordinated crackdown against the crypto market.
The global crypto market cap fell below $1 trillion for the first time since the start of the year. The crypto market cap slips to $993 billion, down 3% in the last 24 hours.
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