US regulators shut down issuance of Binance-branded stablecoin, BUSD
US financial regulators have taken action against cryptocurrency exchange Binance by shutting down further issuance of its stablecoin BUSD. The New York Department of Financial Services has called for a halt to minting BUSD from February 21, 2023. This move comes as US authorities increase scrutiny on digital assets.
Stablecoins are often used as a store of value between bets on digital coins as they are designed to track the price of the dollar and other traditional currencies. BUSD is the world’s third-largest stablecoin, with 16 billion in circulation. Although it is branded as Binance USD, it is not issued or redeemed by Binance. However, the token represented roughly 40% of monthly trading volume on the Binance exchange last month, according to CryptoCompare.
Paxos, the stablecoin company behind the issuance of the token, announced on Monday that it would end its relationship with Binance over BUSD. The NYDFS cited “several unresolved issues” related to Paxos’s oversight of its relationship with Binance for the token.
US regulators are taking a harder line on the industry, and the Securities and Exchange Commission has cited oversight of digital assets as a priority for 2023. Last week, Kraken, another exchange, agreed to pay $30m and discontinue its crypto-staking programme in the US.
“Binance’s statement could be read as a thinly veiled admission that they don’t want to be in the United States,” said Ilan Solot, co-head of digital assets at Marex Solutions. “The treatment crypto is receiving by US regulators is going to push the industry out of the country,” he added.
The clampdown on Binance by the US regulator could lead to a loss of confidence in the market. Data-tracking crypto transactions suggest that BUSD holders are already starting to switch to Tether, the industry’s largest stablecoin.
Binance has faced regulatory scrutiny from authorities around the world, including Singapore, the Netherlands, and the UK. The sprawling crypto exchange has a separate US company to service US customers.
Binance said in a statement on Monday that the market cap of BUSD would “only decrease over time”. The exchange added that it would be “reviewing projects in certain jurisdictions given ongoing regulatory uncertainty”. Earlier this month, Binance suspended US dollar payments on the exchange without giving a reason.
US regulators appear to be attempting to crack down on the crypto industry, potentially at the expense of seeing how digital assets can coexist within the traditional financial system, said James Herring, a partner at UK law firm Addleshaw Goddard.
Binance has pledged to work with law enforcement agencies and regulators to ensure that digital assets are not used for illicit activities. However, the crypto exchange is now facing increased scrutiny in the US as the Biden administration seeks to clamp down on illicit financing risks associated with digital assets.
Paxos said that all the BUSD tokens it had issued were backed 1:1 with US dollar-denominated reserves and were fully segregated and held in bankruptcy remote accounts. Existing tokens would remain redeemable to customers for at least a year.
The regulatory scrutiny of Binance and the crypto industry may lead to more stringent measures, and investors may start to seek alternatives to Binance and BUSD. The industry must now work closely with regulators to ensure that digital assets can coexist within the traditional financial system.
