US financial regulators have halted further issuance of Binance branded stablecoin BUSD as the crackdown on the cryptocurrency sector continues to gain momentum.
Paxos, the stablecoin company behind the token issuance, announced Monday that it will end its relationship with the Binance exchange via BUSD.
The suspension of BUSD issuance from February 21 was called for by the New York Financial Services Authority, the regulator of the sector, as US authorities stepped up scrutiny of crypto market practices.
Last week, the U.S. Securities and Exchange Commission made oversight of digital assets a priority for 2023, settling a lawsuit with another exchange, Kraken. Crypto staking programKraken agreed to pay $30 million and cease operations in the United States.
stablecoin Designed to track the price of dollars and other traditional currencies, it is often used as a store of value between bets on digital coins. With around 16 billion BUSD in circulation, according to CryptoCompare, he is the third largest stablecoin in the world.
BUSD tokens are branded as Binance USD, but are not issued or redeemed by Binance. However, according to CryptoCompare, the token accounted for around 40% of the monthly trading volume on the Binance exchange last month.
NYDFS cited “several open issues” related to Paxos monitoring the token’s relationship with Binance. The agency added that it has not approved another Binance-issued token linked to BUSD and using Paxos stablecoin as collateral.
James Herring, a partner at UK law firm Adreshaw Goddard, said: “U.S. regulators are taking the industry by storm at the expense of how digital assets can coexist within the traditional financial system. It looks like they’re closing in,” he said.
Binance said in a statement on Monday that BUSD’s market capitalization “will only decline over time.” We are looking at the project,” he said. The sprawling cryptocurrency exchange suspended U.S. dollar payments on its exchanges earlier this month, but did not disclose the reasons for the decision.
“[Binance’s statement] Ilan Solot, Co-Head of Digital Assets at Marex Solutions, said: “The treatment cryptocurrencies are receiving by US regulators will push the industry out of the country,” he added.
Paxos said existing tokens can be redeemed by customers for at least one year. He added that all his BUSD tokens issued are backed 1:1 by a U.S. dollar denominated reserve, held in a fully segregated and insolvent remote account.
CryptoCompare research analyst Jacob Joseph said data tracking crypto transactions shows that BUSD owners have already started switching their stakes to Tether, the industry’s largest stablecoin.
Binance, which has another US company serving US clients, faces scrutiny from regulators around the world, including in Singapore, the Netherlands and the UK.
But sprawling cryptocurrency exchanges face renewed scrutiny in the US as the Biden administration seeks to crack down on the risks of illicit funding associated with digital assets.
Last month, the Treasury Department’s Financial Crimes Enforcement Network named Binance as a counterparty to Bitzlato. The Bitzlato founder has been charged with running an unlicensed money transfer business transferring over $700 million in illegal cryptocurrencies. The group said it was committed to working with law enforcement agencies.