Stablecoins not the target in BUSD crackdown: Matrixport head of research

Matrixport’s head of research for crypto-financial services believes that the recent scrutiny of Paxos and its Binance USD (BUSD) token is not a direct attack on the stablecoins themselves.

In a Feb. 14 analysis, Markus Thielen of Matrixport suggested that Paxos Trust Company, the issuer of BUSD, may not have exercised sufficient control over the token.

He added that the issue “doesn’t seem to be related to stablecoins” per se.

“Paxos has violated its obligation to conduct individual periodic risk assessments and due diligence on Binance clients and Paxos-issued BUSD,” Thielen said.

On Feb. 13, the New York City Department of Financial Services (NYDFS) ordered Paxos to stop issuing BUSD “as a result of several outstanding issues related to Paxos’ oversight of its relationship with Binance.”

Paxos also recently confirmed that on Feb. 3, the US Securities and Exchange Commission (SEC) issued a Wells notice to the stablecoin issuer due to its alleged failure to register the offering under federal securities laws.

Thielen notes that $11 billion of BUSD has been issued on Ethereum, but there is also a $4.8 billion Binance-Peg BUSD token on the BNB Smart Chain. Binance provides a pegged token service where BUSD is locked on Ethereum and Binance-Peg BUSD is issued on the BNB chain and other blockchains such as Avalanche and Polygon.

“It appears that the NYDFS is now concerned that the $4.8 billion may not be properly backed or have 1:1 backing issues,” he said.

However, Paxos has declared most recently on Feb. 13, “BUSD tokens issued by Paxos Trust have been and always will be backed 1:1 by USD-denominated reserves, fully segregated and held in deleted bankrupt accounts.”

In a statement to Cryptooshala, Binance reiterated this stance, stating, “BUSD is a 1:1 backed stablecoin that is one of the most transparent stablecoins in existence.”

Thielen notes that some of the regulatory action may also have been triggered by the Jan. 24 incident, when Binance mixed customer funds with collateral.

The recent action against BUSD still leads some to believe that other stablecoins may be in trouble.

Paxos recently stated that, aside from the current BUSD issue, “there are clearly no other allegations against Paxos.”

Meanwhile, Circle Chief Strategy Officer and Head of Global Policy at USD Coin (USDC) issuer Dante Disparte told Cryptooshala:

“Circle claims USDC is a regulated dollar-denominated digital currency issued as a store of value under the US Money Transfer Act.”

“The facts and circumstances in any type of regulatory action like this are different, as are the structural and regulatory considerations for each of the cryptocurrencies in circulation around the world,” Disparte added.

Paxos ‘strongly disagrees’ with SEC that BUSD is a security

However, Thielen urged the industry not to worry too much about the future of BUSD.

“Binance has shot itself in the foot a bit, but they are working on it and it needs to be resolved. So should we really be worried?” Tilen said.

“I don’t think so. Does the bayonet break? NO. We are no longer in a bear market where you worry about going down, in a bull market you focus on going up,” he added.

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