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Binance coin, or BNB, slumped 5% after the New York Department of Financial Services ordered Paxos Trust to stop creating more of its BUSD token.
BUSD is a stablecoin backed by the U.S. dollar, which was created in 2019 in a partnership between crypto platform Binance and blockchain company Paxos Trust, with approval from the New York Department of Financial Services. BNB coin is the native token on the Binance exchange.
On Monday, Paxos Trust had been ordered by the New York Department of Financial Services to cease minting new BUSD tokens.
Paxos confirmed it will stop the issuance of BUSD tokens effective Feb. 21 but continue to manage BUSD dollar reserves. “BUSD will remain fully supported by Paxos and redeemable to onboarded customers through at least February 2024,” the company said in a statement.
The BUSD token was trading just below parity on Monday, according to Coinmarketcap.
Binance maintained that BUSD is a stablecoin “wholly owned and managed” by Paxos.
“As a result, BUSD market cap will only decrease over time. Paxos will continue to service the product, manage redemptions, and will follow-up with additional information as required. Paxos also assured the funds are safe, and fully covered by reserves in their banks,” a spokesman from Binance said.
“Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from further undue harm,” they added.
The crypto industry has been embroiled in a whirlwind of regulatory scrutiny this year following the implosion of FTX and the collapse of Terra/Luna cryptocurrencies earlier last year.
Further headache for Paxos is headed its way. The company also has been told by the Securities and Exchange Commission that the agency plans to sue it for violating investor protection laws and alleges that BUSD is an unregistered security, the Wall Street Journal reported on Sunday, citing people familiar with the matter.
