Paxos has been trying to secure a national trust bank charter for a while now. There have been rumors that the firm has been denied the aforementioned license, which it actually denied.
To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.
— Paxos (@PaxosGlobal) February 8, 2023
Nevertheless, it seems trouble might be brewing for the New York-based crypto company.
As a crypto company headquartered in New York, Paxos Trust Co. is regulated by the New York State Department of Financial Services (NYSDFS), The watchdog provides locally based firms with a BitLicence, which is mandatory for companies wishing to operate in their jurisdiction.
Any stablecoin-related operations must fully comply with the NYSDFS’ stablecoin-related guidance – which was issued in the wake of TerraUSD’s ignominious collapse – along with all other regulatory directives. In exchange, the New York watchdog also gains regulatory insights into these businesses’ dealings.
Recently, the NYSDFS launched a probe into Paxos’ dealings, although the exact scope of the investigation is unclear, according to Bloomberg.
A spokesperson for Paxos refused to comment on the investigation itself, stating that it is still ongoing. However, they did affirm that they are in constant communication with regulators, regardless of 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.”
Reason for Investigation Unconfirmed
It’s worth noting that although Paxos is perhaps best known for running Binance’s stablecoin, it also has its own USD-backed stablecoin, as well as a gold-backed cryptocurrency and a crypto exchange, itBit. Therefore, the investigation at hand may be completely unrelated to BUSD or even to stablecoins in general.
When reached for comment, Binance reaffirmed that BUSD is one of the most transparent stablecoins in existence, and it is fully backed.
“BUSD is a 1-to-1 backed stablecoin that is one of the most transparent stablecoins in existence.”
Binance also stated that it will continue to monitor the situation Paxos has gotten involved in and will clarify circumstances if necessary.
Nevertheless, both Binance and Paxos have remained tight-lipped on the subject of the investigation and will likely continue to do so unless absolutely necessary.
It’s also important to note that an investigation does not mean any wrongdoing has actually occurred. If the probe proves that no mischief has taken place, it can actually be considered proof of a company’s strict adherence to the rules.