NYDFS stops Paxos from issuing BUSD tokens through Binance over reserve concerns

02/14/2023 21:33 • AI & Tech Insights • 80 views

It is reported that Circle reported to the New York Financial Services Department (NYDFS) in the fall of 2022, complaining that the blockchain data showed that Binance did not have enough reserves to support its BUSD tokens issued through Paxos. NYDFS spokesman told Reuters that Paxos did not manage BUSD in a “safe and reliable” way, so “it violated its obligation to conduct customized regular risk assessment and due diligence updates for the BUSD customers issued by Binance and Paxos” to prevent bad actors from using the platform. ” NYDFS instructed Paxos to stop casting BUSD. Paxos agreed to stop casting new BUSD tokens, but said in a press release released on Monday that all its issued BUSD tokens were fully supported by reserves denominated in US dollars. It was also reported that Paxos denied the rumor that the United States Office of the Comptroller of the Currency (OCC), the federal banking regulator, might require Paxos to withdraw its application for a full banking license (Paxos received the OCC’s provisional banking license in 2021). (Bloomberg)

Foreign media: Circle reported to NYDFS that Binance did not have enough reserves to support its BUSD tokens

Interpretation of the news:

In the fall of 2022, Circle reported to the New York Financial Services Department (NYDFS) that blockchain data indicated Binance did not have enough reserves to support its BUSD tokens issued via Paxos. As a result, NYDFS spokesperson stated that Paxos did not manage BUSD in a “safe and reliable” way, violating its obligation to conduct customized regular risk assessment and due diligence updates to prevent bad actors from exploiting the platform. NYDFS instructed Paxos to halt issuing BUSD tokens.

Paxos confirmed it would stop casting new BUSD tokens, yet insisted in a press release that all BUSD tokens it had issued were fully backed by reserves valued in US dollars. Furthermore, Paxos denied rumors that the US Office of the Comptroller of the Currency (OCC), the federal banking regulatory authority, would request it to withdraw its application for a full banking permit. (Paxos had received the OCC’s preliminary banking permit in 2021).

This news implicates issues of adequate reserve levels and risk management obligations when issuing stablecoins like BUSD. Stablecoins offer the security and stability of traditional currencies, but their value is tethered to and backed by financial reserves rather than being intrinsically valuable. If reserves do not meet their matching liability in BUSD, stablecoins’ value and trust will erode – this could lead to solvency issues, snuff out innovation in emerging economies, and undermine the foundations of decentralized finance (DeFi).

The question of adequate reserves also raises concerns related to the systemic nature of stablecoins. The risks aren’t just concentrated in 1 or 2 entities, but inject centralization risk into the whole ecosystem. If one entity is unable to back its BUSD issuance with sufficient matching reserves, this increases the possibility for overall instability across the ecosystem. This could create a cascade effect in financial markets, leading to a wider trust deficit in DeFi.

In conclusion, the NYDFS’s action to halt BUSD issuance via Paxos over reserve concerns reflects the challenges of maintaining a trustworthy DeFi ecosystem. While Paxos insists it’s fully backed its BUSD issuance, the NYDFS’s decision to intervene sends a powerful message about how critical it is for all stablecoin issuers to act with transparency and maintain the right level of financial resilience. This action will not only protect consumer interests but also underpin the development of a robust and trustworthy ecosystem that will support a paradigm shift in the way financial services are delivered.

This article and pictures are from the Internet and do not represent qiAiAi's position. If you infringe, please contact us to delete:https://www.qiaiai.com/ai/124.html

It is strongly recommended that you study, review, analyze and verify the content independently, use the relevant data and content carefully, and bear all risks arising therefrom.