Speculations that BUSD Crackdown Suggests Regulatory Target of Stablecoins Dismissed

The lead researcher at Matrixport ruled out the suggestion that regulatory agencies’ recent crackdown on Paxos Trust involved a targeted attack on all stablecoins. 

The head of research at Matrixport, Markus Thielen, dismissed rumors that the news of the United States Securities and Exchange Commission (SEC) scrutinizing Paxos’ Binance USD (BUSD) token amounted to launching a direct attack on all stablecoins. 

Regulatory Scrutiny of BUSD Blamed on Paxos’ Failures

As an experienced crypto financial expert, Thielen indicated that SEC scrutiny on BUSD arose from the failure of Paxos to deploy stringent oversight checks on the stablecoin token. The blockchain company owns and issues the Binance-branded stablecoin pegged to the US dollar.
In his February 14 analytical update, Thielen considers that scrutiny of the SEC and the New York Department of Financial Services (NYDFS) does not signify a regulatory issue around stablecoins.

Thielen echoed the SEC argument that Paxos contravened the obligation to execute tailored risk assessments on the BUSD customers. The analyst considered that Paxos failed in its due diligence duty of Binance. 

NYDFS Restrictive Clampdown on Unregistered Digital Assets

Thielen restated the update issued by NYDFS on February 13, directing Paxos to suspend fresh issuance of the BUSD. He indicated that the directive by New York’s financial regulator obligating the blockchain company to halt minting BUSD was inevitable. 

The move by NYDFS reinforced efforts by the SEC to clamp down on unregistered digital assets. Thielen considers the restrictive instructions to illustrate the discovery of multiple unresolved issues attributed to Paxos’ inadequate oversight of its Binance affiliations.  

The perspective portrayed by the Matrixport executive garners support from Paxos’ admission on February 3 that the firm received a Wells notice from SEC alleging its involvement with the unregistered offering. 

Thielen points out that Paxos’ initial disclosures indicated $11 billion worth of BUSD were issued on the Ethereum network. In addition, Paxos accounts for another $4.8 billion as issued by utilizing the Binance Smart Chain through tokenized BUSD tokens. 

Transparency in Managing BUSD Stablecoin and Dollar-Denominated Reserves 

NYDFS restrictive directive suggests that $4.8 billion BUSD tokens failed to fulfill the requisite backing. Paxos has since then dismissed such speculations of running the stablecoins without sufficient reserves. In particular, Paxos Trust confirmed running matching dollar-denominated reserves held in autonomously remote accounts. 

A subsequent statement by Binance echoed Paxos’ stance that BUSD is among the transparently managed stablecoins. Thielen dismissed Binance’s assurance by recalling the January 24 events when the crypto exchange. 

Thielen notes some of the regulatory actions could have also been sparked by the January 24 incident when Binance mixed customer funds with collateral. The activities undertaken by regulators towards Paxos and BUSD convince the crypto community to speculate that several stablecoins are subject to enforcement actions. 

Meanwhile, Paxos dismissed several battling allegations for its operations. The firm’s statement ruled out facing multiple allegations besides the BUSD issue. 

Impact of Action Against Paxos to Other Stablecoin Issuers

The actions against Paxos are prompting updates from stablecoin issuers. In particular, Circles head of global policy and strategy, Dante Disparte, assured its community that USDC is a legally regulated dollar-based digital currency. The official confirmed that USDC could serve to store value in compliance with the money transmission law. 

Disparate admitted that circumstances during regulatory action, as seen against Paxos BUSD, vary with each cryptocurrency. Often, facts vary with the regulatory and structural considerations relative to the circulating crypto. 

Paxos admitted that the enforcement action has triggered increased activity among investors who desire an immediate exit. The stablecoin issuer confirmed a 700 million redemption in the past 24 hours that translated to 6% of the entire BUSD in circulation. The high redemption rate affirms Binance chief executive Changpeng Zhao stance that the BUSD market capitalization is bound to decline over time.

Thielen challenged the industry to calm concerns about BUSD’s future. However, Binance appears retrogressive currently though committed to overcoming the challenges.

Thielen decried the timing of the crackdown as the crypto market is gradually sliding out of the bear market. In addition, he dismissed the possibility of stablecoins losing their pegs. 

Editorial credit: Ira Lichi / Shutterstock.com

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