Paxos Faces Scrutiny From New York Regulators As They Gear Up To Protect Consumers

BUSD and USDP issuer Paxos have come under New York regulators’ radar. Although there is no specific reason for the investigation, reports revealed that the New York Department of Financial Services (NYDFS) launched a probe into Paxos’ operations.

According to a recent report, someone familiar with this matter said the regulators are yet to clarify the reason behind the sudden investigation.

Why Is Paxos Under Investigation?

While speaking to Bloomberg, a spokesperson for NYDFS refused to deliver a specific comment regarding the ongoing investigation. But they said the probing is part of the department’s initiative to protect consumers from the risks in cryptocurrency investments.

The spokesperson claims that NYDFS wants to understand the vulnerabilities and risks consumers and institutions might face from crypto market volatility.

Paxos became the issuer of BUSD, a dollar-pegged stablecoin, after its partnership with Binance in September 2019. BUSD is the third-largest stablecoin by market capitalization. Paxos is also the issuer of USDP (Paxos Dollar), launched in 2018, and the developer of PAX Gold (PAXG), a gold-pegged Ethereum token. According to data from CoinGecko, USDP is currently the sixth-largest stablecoin by market cap.

Paxos has been in the cryptocurrency business since 2012. That was when the firm started and launched itBit, a crypto exchange. The firm obtained its BitLicense (a New York-issued license for crypto service providers) from NYDFS in 2015, granting it legal permission to carry out cryptocurrency-related operations in New York.

Earlier, rumors circulated that the US office of the Comptroller of the Currency (OCC) might ask Paxos to withdraw its application for a full banking charter even though it obtained preliminary approval in April 2021. 

However, on February 9, 2023, Paxos debunked these rumors, clarifying that it did not refuse any such order from the OCC. The firm also claimed its BUSD and USDP token reserves have 100% collateral in US dollars and Treasuries.

Paxos is seemingly a compliant firm since it has a BitLicense. So the news of its investigation by the NYDFS comes as a surprise in the crypto space.

The recent regulatory probing of the stablecoin issuer by the NYDFS may be linked with the regulator’s new regulatory guidance. However, it is still uncertain since the regulators, Binance, and Paxos have not commented on the matter.

NYDFS Previous Regulatory Activities In Cryptocurrency Space

Paxos’ investigation isn’t the first move in the crypto industry by the New York regulator. Over the past year, the NYDFS has launched investigations on some crypto firms, including Coinbase.

On January 4, the regulator launched an enforcement action on Coinbase, alleging that the exchange had 100,000 alerts regarding suspicious user transactions. As such, the NYDFS mandated the crypto exchange to pay a $100 million fine for NY financial services and banking laws violations and compliance deficiencies.

Featured image from Pixabay and chart from Tradingview.com