Paxos Ordered to Halt BUSD Issuance by U.S. Authorities, CZ Binance Responds

Following a lawsuit from the SEC alleging that BUSD is a security, Paxos has been directed by U.S. authorities to stop issuing the BUSD stablecoin.

Paxos Ordered to Halt BUSD Issuance by U.S. Authorities

Official Statement from Paxos

Updated evening of February 13, 2023:

Paxos, the issuer of the BUSD stablecoin, has issued an official statement regarding the SEC’s lawsuit and the U.S. government’s directive to cease issuing new BUSD stablecoins.

Paxos has revealed that it will terminate its partnership with the world’s largest cryptocurrency exchange, Binance, concerning the BUSD stablecoin.

Effective February 21, 2023, Paxos will stop issuing new BUSD stablecoins but asserts that existing BUSD stablecoins remain fully backed by assets equivalent to USD.

Investors can still convert BUSD into USD or Paxos’s other stablecoin, USDP, until February 2024.

The company noted that its other stablecoin products, Pax Dollar (USDP) and Pax Gold (USDG), are unaffected, suggesting that U.S. authorities might be focusing specifically on Binance.

In its statement, the New York Department of Financial Services (NYDFS) confirmed that it has instructed Paxos to halt BUSD issuance. The agency stated that it only licenses BUSD issuance on Ethereum and does not oversee the conversion of BUSD from Ethereum to Binance’s BNB Chain.

NYDFS further directed Paxos to ensure that the asset backing for BUSD remains 1:1 and to fully address customer withdrawal requests.

Statistics show that BUSD on the BNB Chain is valued at $4.8 billion, representing about 30% of the total BUSD market cap.

In January 2023, Binance also admitted to past issues with BUSD backing, including the mixing of user assets with reserve assets.

Official Statement from Binance CEO Changpeng Zhao

Updated afternoon of February 13, 2023:

In response to the community’s concerns over these developments, Binance CEO Changpeng Zhao (CZ) tweeted to address the situation:

• Binance was informed by Paxos that the NYDFS has directed Paxos to stop issuing new BUSD stablecoins.
• Paxos is regulated by NYDFS, and BUSD is issued and managed solely by Paxos.
• BUSD will only experience gradual contraction over time. Paxos has assured Binance that circulating BUSD is fully backed by reserve assets held in banks and is regularly audited.
• Binance will continue to support BUSD on its platform as usual. The assets remain secure.

CZ did not comment on the SEC’s lawsuit against Paxos, stating that it is a U.S. issue and he is not an expert in legal matters.

However, CZ acknowledged that with the halt on new BUSD issuance, its market cap will likely decline over time. He also noted that if BUSD is declared a security, it will have significant legal implications for the crypto industry.

Binance remains committed to prioritizing user interests and will continue to support BUSD. However, the exchange does not rule out the possibility of changing products or removing the BUSD trading pair if necessary.

BNB Price Drops Amidst Market Reaction

Following the news, the price of BNB quickly fell from $316 to a low of $302 within minutes.

1H Chart of BNB/USDT on Binance at 03:15 PM February 13, 2023

Meanwhile, BUSD has not deviated significantly from its $1 peg, currently trading around $0.9985.

1H Chart of BUSD/USDT on Binance at 05:00 PM February 13, 2023

Paxos Ordered by New York Authorities to Halt BUSD Issuance

As reported by Coin68 in the early hours of February 13, 2023, the SEC sued Paxos, alleging that BUSD is a security. This news quickly unsettled the crypto community and led to significant declines in major cryptocurrencies.

By the afternoon, the Wall Street Journal reported that the NYDFS had instructed Paxos to cease future issuance of BUSD.

This means Paxos will no longer be able to issue new BUSD, only maintaining conversions between tokens and fiat currency.

On-chain data indicates that the last BUSD minting occurred in the early hours of February 4, valued at approximately $209 million. Since then, about $123.32 million BUSD has been burned.

BNB price quickly reacted negatively to this news, dropping from $316 to a low of $302 in just a few minutes.

1H Chart of BNB/USDT on Binance at 03:15 PM February 13, 2023