New York regulators directed a crypto company to stop issuing one of the largest dollar-pegged cryptocurrencies, as a government clampdown on the sector widens.
The New York Department of Financial Services ordered Paxos Trust Co., which issues and lists Binance’s dollar-pegged cryptocurrency, to stop creating more of its BUSD token, Binance said in a statement. Paxos will continue to manage redemptions of the product, the giant crypto exchange added.
BUSD, also known as Binance USD, is a stablecoin backed by U.S. dollars on a one-to-one basis. Binance and Paxos partnered to launch it in 2019 and said the stablecoin was approved by New York’s financial regulator. Binance said BUSD is issued and owned by Paxos and that the crypto company only licenses its brand. There were 6.2 million holders of BUSD as of Feb. 13, according to Binance’s website.
A spokeswoman for New York-based Paxos didn’t immediately respond to a request for comment.
Regulators have ramped up scrutiny of crypto companies this year. The Securities and Exchange Commission told Paxos that it plans to sue the company for violating investor protection laws, The Wall Street Journal reported. The SEC hasn’t previously taken enforcement action against a major stablecoin issuer.
Stablecoins have become a lucrative business in recent years. Traders wanting to easily buy or sell cryptocurrencies have flocked to the dollar surrogates because they provide a stable token to trade in and out of without requiring bank settlements. It typically takes days to exchange cryptocurrencies for cash, which can result in missed trading opportunities in a volatile market.
Companies like Paxos found a steady source of income by issuing stablecoins and investing users’ cash deposits in short-term U.S. Treasurys, which have yielded more as the Federal Reserve raised interest rates.
Binance USD has grown to become the third-largest stablecoin by market cap. With Paxos no longer issuing the token, that market cap is set to drop from its Monday level of about $16 billion. The stablecoin was trading close to its $1 value early Monday morning.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
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