The cryptocurrency company Paxos has been ordered by The New York Department of Financial Services to stop issuing the stablecoin known as Binance USD [BUSD], which was followed by a drop in the crypto token’s price, according to The Wall Street Journal.
The price of BUSD dipped to $0.9989 on Monday. Meanwhile, top stablecoin Tether [USDT] spiked slightly to trade at around $1.0023 on Monday.
Stablecoins are a type of cryptocurrency where each token price is the same - or “pegged” - to the value of a currency such as the US Dollar or British Pound Sterling. They are relatively less volatile than cryptocurrencies such as Bitcoin and Ether, but can still rise and fall in response to market conditions.
“DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD,” said the regulator on its website.
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Paxos also said it received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), an indication that it may be sued in the future.
Crypto exchange Binance’s CEO Changpeng Zhao sought to assure investors that their funds were safe, but also clarified that Binance USD was “wholly owned and managed by Paxos.”
Stablecoins are used by crypto investors to make trades on exchanges. They are also used by crypto investors in emerging economies to protect their savings when their native currency is depreciating. Last year, The Intercept reported that some people in Afghanistan were using BUSD to evade sanctions and escape starvation.
In 2022, the de-pegging of the Terra USD [UST] stablecoin led to its collapse along with sister currency LUNA, effectively wiping billions of dollars from the sector.
