The bullet goes through the church: the New York Department of Financial Services (NYDFS) has informed Paxos that it can no longer issue new Binance USD (BUSD). Paxos manages the stablecoin on which the exchange platform brand has been running for years. Paxos can continue stablecoin maintenance for now, says Binance.
What is Binance USD?
Binance USD is a US Dollar backed stablecoin that traders on the exchange platform can use to pause the market. Paxos and Binance jointly launched the stablecoin in 2019, which was accepted under New York financial law at the time. Binance claims that BUSD is wholly owned by Paxos and that the exchange platform only licenses its brand.
As of February 13, there were 6.2 million token holders for the stablecoin, according to the Binance website. A spokesperson for New York-based Paxos initially declined to comment on the report. As such, it remains to be seen if there is an opportunity for Paxos to challenge the NYDFS decision.
Changpeng Zhao responds
Shortly after the Paxos news broke, Binance CEO Changpeng Zhao responded with some reassuring words. “Basically, BUSD is issued and managed by Paxos. All funds are safe,” said the CEO of the exchange platform. “We have been notified by Paxos of the NYDFS decision that they are no longer allowed to issue new BUSD. […] As a result, the market value of BUSD will decline over time,” continued Zhao.
The good news is that Paxos is allowed to keep the stablecoin for now. “Paxos assured us that the funds are safe and that BUSD is fully backed by the reserves in their bank accounts, which have been audited by professionals several times,” said Changpeng Zhao.
In the latest tweets in his thread, Zhao discusses the upcoming lawsuit between Paxos and the NYDFS, which he says could have a major impact on the industry. “If BUSD is classified as a title in court, it could have a major impact on the future of the industry,” said Zhao. If the token qualifies as a security, exchange platforms cannot offer it without the necessary licenses.
How do stablecoin issuers make money?
For many viewers, it can be difficult to understand why it is interesting for companies to issue stablecoins. The answer to this question is quite simple. Companies like Paxos can make good money from the US dollars that people invest to get BUSD in return.
He invests part of those US dollars in short-term government bonds, which yield decent returns thanks to interest rate hikes by the US Federal Reserve. In this way, stablecoin issuers can currently earn more than 4% per year by investing user funds in US Treasuries.
The NYDFS decision has no negative impact on the BUSD price. At the time of writing, the stablecoin is trading at $0.9993 each. Depending on the demand for the stablecoin, the price is usually just below the US dollar or worth slightly more than the world’s major currencies.
Source: Btc Direct
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Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
