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How regulatory challenges with Paxos-issued BUSD affect the Stablecoin market.

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Crypto analysts are attempting to predict how the purported investigations by US regulators into how stablecoin issuer Paxos managed the fiat-backed Binance USD ($BUSD) would affect the stablecoin market and the crypto industry as a whole.

Paxos stated that it will “terminate its cooperation with Binance for the branded stablecoin BUSD” in a statement made yesterday. As instructed by the New York Department of Financial Services (NYDFS) and in close cooperation with them, Paxos will stop issuing new BUSD tokens as of February 21, 2023. Paxos Trust will continue to maintain BUSD dollar reserves. “A licensed organization supervised by the NYDFS and audited by a top-four accounting firm,” describes Paxos Trust.

Paxos continued by stating that all BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, properly separated and stored in bankruptcy distant accounts.  BUSD reserves are fully-backed, it further stated.

BUSD will remain fully supported by Paxos and redeemable to onboarded clients through at least February 2024,” according to Paxos, who also notes that new and Current Paxos users can change their BUSD tokens to Pax Dollar (USDP), a regulated stablecoin also produced by Paxos Trust, or redeem their holdings in US dollars.



The following day, Clara Medalie, Director of Research at Kaiko, spoke with Caroline Hyde and Ed Ludlow of Bloomberg TV and discussed this subject.

BUSD is mostly utilized on Binance and its blockchain, Binance Smart Chain, according to Medalie, and is not widely used on other cryptocurrency exchanges. Because of this, she thinks that Binance should be targeted, not stablecoins as a whole when the New York Department of Financial Services (NYDFS) orders Paxos to stop creating new BUSD tokens.

Medalie said that Binance has increased its marketing efforts to promote the usage of BUSD, and that as of right now, 35% of all transaction volume on Binance is denominated in BUSD, up from 20% at the beginning of the year. Additionally, she noted that stablecoins are essential to DeFi ecosystems, which is why Binance was motivated to launch its own stablecoin.

Tether ($USDT) is the most popular stablecoin, however, due to the NYDFS’s actions, Binance no longer has access to this growth lever. Currently, the great bulk of all cryptocurrency trading is done using Tether. Medalie said that BUSD provided a wonderful counterbalance to Tether’s power, but now that BUSD is no longer in circulation, all the risk is sadly concentrated in one centralized organization, which is never a good thing.