NYDFS’ Crackdown On Paxos May Be Prompted By Circle’s Complaint

  • The lawyer claims that the action may have nothing to do with the security attributes of stablecoins or staking.
  • Paxos recently disagreed with the allegations made by the SEC regarding its BUSD stablecoin.

The intensified regulatory crackdown against Paxos and its crypto offerings may not have anything to do with their security status, as claimed by regulators. A lawyer recently took to Twitter to highlight recent developments that may explain the New York Department of Financial Services’ motivation to go after the BUSD issuer.

According to Collins Belton, the real motivation of the New York regulator to initiate the recent actions against Paxos is the Binance pegged BUSD stablecoin and alleged instances of insufficient reserves to fully back the crypto asset. If this is true, then the enforcement actions may have nothing to do with the security attributes of stablecoins or staking as claimed by multiple regulators.

“IMO this NYDFS action is more tied to ML/OFAC-like concerns and much of what we’ll see over the next few weeks will reinforce that this is more of a driver than people seem to be acknowledging,” the lawyer tweeted.

The concerns surrounding Paxos’ alleged insufficient reserves came to light yesterday following a report which revealed a complaint by Circle to the NYDFS last year. The complaint accused the BUSD issuer of not having enough reserves to fully support the tokens that it had issued. This, paired with the Binance-peg BUSD and poor response from Paxos, may have motivated the regulator’s wrath.

The lawyer believes that the Securities and Exchange Commission may be approaching this from a similar angle. This would do well to limit the scope of their enforcement action and may protect other stablecoins from its impact. The SEC issued a Wells notice to Paxos yesterday, indicating a potential lawsuit against the stablecoin firm.

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