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USDC's Circle Warned NY Regulators Binance Wasn't Properly Backing Tokens

Tim Fries

Published: February 14, 2023 3:19 am

Last Updated: February 14, 2023 12:20 pm

According to a Monday report, Circle, best known as the issuer of the USDC stablecoin, warned New York watchdogs that Binance was not properly backing the tokens it was issuing.  The complaint ultimately led to the order that Paxos should stop issuing BUSD.

Circle Filed a Complaint With NYDFS Over Binance-Issued Tokens

Reportedly, the stablecoin issuer Circle filed a complaint with the New York State Department of Financial Services sometime during the Autumn of 2022 alleging that Binance wasn’t properly backing the tokens it was issuing. For example, the world’s largest cryptocurrency exchange at one point allegedly had only $100 million worth of assets backing $1.7 billion of Binance-peg USDC.

A similar situation was true for multiple tokens issued by Binance, including its own BUSD. Paxos, the firm issuing the Binance-branded stablecoin, was recently ordered to stop minting it. The stablecoin-issuer, while agreeing to stop minting new coins, stated that all already-issued BUSD remains fully backed. New York regulators also allegedly stated that Paxos failed in its obligation to conduct regular risk assessment and due diligence with regard to the token.

Last week, on February 10th, Binance admitted that BUSD wasn’t always properly collateralized but primarily due to a lower frequency of balance updates. At the time, the world’s largest cryptocurrency exchange also stated that it had already detected the issue and implemented measures to resolve it.

Binance’s CZ Responds to NY Regulator’s Order to Paxos

Quickly after it was revealed that NYDFS ordered Paxos to stop minting BUSD, Binance’s CZ took to Twitter to publish his statement on the situation. According to the exchange’s CEO, Binance will, much like Paxos, continue supporting the stablecoin “for the foreseeable future”. He also added that despite the regulatory actions all user funds are safe.

CZ also touched upon the allegation that the Securities and Exchange Commission is preparing to sue Paxos as it considers BUSD to constitute an unregistered securities offering. Binance’s CEO stated that while he has no information on the case as it is not directly related to his company, he believes that if BUSD is ruled to be a security, it could have a profound impact on the future development of digital assets.

Recent aggressive actions taken by regulators in the US significantly shook the cryptocurrency market and disrupted several large projects. Last week, NYDFS’s investigation of Paxos proved significant enough for PayPal to pause its stablecoin project indefinitely.

This article originally appeared on The Tokenist