Although the investigation's precise motivation is unknown, it has been claimed that New York regulators would step up consumer protection operations this year.
According to reports, the New York Department of Financial Services (NYDFS) is looking into Paxos Trust Company, the stablecoin issuer located in New York that is responsible for Binance USD (BUSD) and Paxos Dollar (USDP).
According to a Feb. 10 report by Bloomberg, "a person familiar with the matter," the investigation's precise purpose is still up in the air.
The NYDFS is actively attempting to safeguard consumers from the hazards involved with investing in the cryptocurrency market, according to a department representative who declined to comment on ongoing investigations.
“The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.”
A U.S. dollar-denominated cryptocurrency called BUSD has been released by Binance and Paxos. Since the company and Binance partnered in September 2019, dollar-collateralized stablecoin has been available. With a current market worth of more over $16 billion, it is the third biggest stablecoin.
It is also the innovator of the 2018-released Paxos Dollar (USDP). According to CoinGecko, it is now the sixth biggest stablecoin with a market worth of roughly $875 billion. It is also the creator of PAX Gold (PAXG), an Ethereum token backed by gold.
The business founded Paxos in 2012 and is also responsible for the digital asset exchange itBit.
Paxos received a "BitLicense" from the NYDFS in 2015, allowing businesses to lawfully engage in operations relating to digital currency in the state of New York.
Recently, Paxos denied reports that the U.S. Office of the Comptroller of the Currency (OCC), despite just gaining a preliminary approval in April 2021, may force Paxos to withdraw its application for a full banking charter.
Paxos also states that all of the reserves for its BUSD and USDP tokens are backed by American dollars and US Treasury bills.
If the inquiry is as reported, it won't be the only one the NYDFS has started in the past 12 months.
On January 4, Coinbase Global U.S. and the New York regulator agreed a $100 million settlement after discovering that they had overlooked around 100,000 questionable transactions made by users who had created accounts without doing adequate background checks.
The Terra LUNA ecosystem and its failing algorithmic stablecoin TerraClassicUSD (USTC) imploded in May 2022, and soon after, the NYDFS released a stablecoin guideline report to make sure stablecoin issuers adequately back their assets and routinely attested.