The Paxos Trust Company, a New York-based stablecoin issuer known for issuing Binance USD (BUSD) and Paxos Dollar (USDP), is reportedly being investigated by the New York Department of Financial Services (NYDFS).
The full extent of the investigation is not yet clear, and an NYDFS spokesperson declined to comment on ongoing investigations.
Paxos has been in the news a lot recently
Paxos is in possession of both a virtual currency license (also known as a BitLicense) granted by the New York Department of Financial Services (NYDFS) and a provisional banking charter granted by the Office of the Comptroller of the Currency (OCC) of the United States.
Recently, the firm has been in the news owing to speculations that the OCC may order it to withdraw its application for a complete banking charter. These rumors have been refuted by Paxos, but they have contributed to the company’s recent prominence in the headlines.
The inquiry being conducted by the NYDFS provides evidence that the company is being subjected to a more stringent scrutiny than its competitors.
The New York Department of Financial Services recently issued recommendations for stablecoins, which prompted the agency to begin investigating Paxos.
The rules were established by the regulator in June 2022, and they urge stablecoin issuers to guarantee that their coins are completely backed by assets that are kept separate from the issuers’ finances and are attested to on a regular basis.
The collapse of TerraClassicUSD (USTC) prompted the creation of this regulation, the purpose of which is to assure the stability and security of asset-backed stablecoins.
NYDFS’s tussle with Coinbase
In addition to the investigation into Paxos, the New York Department of Financial Services recently reached a settlement with Coinbase Global U.S. for the amount of $100 million for failing to review approximately 100,000 potentially fraudulent transactions from customers who opened accounts without the required appropriate background checks.
The introduction of stablecoins and the possibility of broad adoption of these cryptocurrencies have made it more vital for regulators to maintain the stability and security of these cryptocurrencies.
The cryptocurrency business is expected to continue its rapid growth and maturation, which will likely result in an increase in the number of regulatory investigations similar to the one being conducted now.
Stablecoin issuers have a responsibility to their consumers to take the necessary precautions to guarantee the complete backing of their currencies and to comply with the regulations imposed by authorities in order to keep their customers’ faith.
It is essential to keep in mind that the investigation into Paxos is still going on, and the whole scope of the problem has not been figured out as of yet.
It will be interesting to see how this investigation develops and what it reveals about the current state of the cryptocurrency industry. The New York Department of Financial Services (NYDFS) and other regulators play a crucial role in ensuring the stability and security of the cryptocurrency industry.