Paxos Trust Company — the New York-based stablecoin issuer behind Binance USD (BUSD) and Paxos Dollar (USDP) — is reportedly being investigated by the New York Department of Financial Services (NYDFS).
A “person familiar with the matter” told Bloomberg in a Feb. 10 report that the exact motive behind the probe is currently unclear.
An NYDFS spokesperson declined to comment on ongoing investigations but noted that the department is broadly working to protect consumers from risks associated with investing in the cryptocurrency market:
“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.”
Paxos has issued BUSD — a U.S. dollar-collateralized stablecoin — since the firm struck a partnership with Binance in September 2019. It is the third-largest stablecoin, with a market cap currently exceeding $16 billion.
It is also the creator of the Paxos Dollar (USDP), which was launched in 2018. At time of writing USDP is the sixth-largest stablecoin, with a market cap of about $875 billion, according to CoinGecko. Paxos is also the founder of PAX Gold (PAXG), a gold-backed Ethereum token.
The company is also behind digital asset exchange itBit, which it launched in 2012 alongside the founding of Paxos.
The NYDFS issued Paxos with a “BitLicense” in 2015, which legally permits companies to conduct digital currency-related activities in the state of New York.
Paxos recently refuted rumors that the U.S. Office of the Comptroller of the Currency (OCC) may order Paxos to withdraw its application for its full banking charter, despite the firm only receiving a preliminary approval in April 2021.
Paxos also claims on its website that its BUSD and USDP token reserves are backed wholly in U.S. dollars and U.S. Treasuries.
If reports of the investigation are true, it wouldn’t be the first one initiated by the NYDFS over the last year.
Coinbase reached a $100 million settlement with the New York regulator on Jan. 4 after they found that the crypto exchange failed to examine about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.
Shortly after Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) collapsed in May, the NYDFS published stablecoin guidance report to ensure stablecoin issuers fully back their assets and attest regularly.
Cointelegraph reached out to Paxos and Binance to comment on the matter but did not receive an immediate response.