- Circle provided information on Binance reserves to the New York Department of Financial Services.
- The report comes as Paxos’s regulatory difficulties grow more serious.
The New York Department of Financial Services (NYDFS) was apparently alerted by stablecoin issuer Circle, that Binance had been improperly handling its token reserves.
Circle informed the NYDFS in a fall 2022 complaint that Binance’s reserves were insufficient to support its tokens, reportedly including the stablecoin Binance USD, according to a February 13 Bloomberg article (BUSD). According to a source with knowledge of the situation, the Circle team learned about the information from data stored on the blockchain.
According to reports, the blockchain data monitoring company Circle noticed inconsistencies in Binance’s on-chain stablecoin reserves. These differences showed that Binance lacked the cryptocurrency needed to back all of the stablecoins it has issued.
Circle’s actions were taken prior to the US Securities and Exchange Commission preparing to sue Paxos on the grounds that BUSD was an unregistered security. On February 13, the NYDFS made an announcement about its own regulatory action, directing Paxos to “stop minting BUSD issued by Paxos” and restating its demands that all tokens produced under its rules be completely backed by cash or cash equivalents.
NYDFS gave Paxos instructions to stop minting BUSD because of reservations about its association with Binance. Paxos decided to halt the production of new BUSD tokens, but stated in a press release released on Monday that every BUSD token it had already issued was completely backed by reserves denominated in U.S. dollars.
An NYDFS spokesman revealed that Paxos was not managing BUSD in a “safe and sound” direction and had therefore breached its responsibility to carry out tailored, periodic risk assessments.
Circle hasn’t publicly affirmed that it carried out the aforementioned activities. Bloomberg, on the other hand, credited its knowledge to an unnamed inside source.
Other companies have previously raised concerns about Binance’s BUSD reserve. Circle’s decision to report on Binance, on the other hand, is relevant due to its prestige as a direct competitor.
The SEC and Kraken reached a deal on February 9 to end Kraken’s staking services for American users, which was the most recent crypto regulatory action in the US to impact crypto firms.