New York financial regulator accused Paxos of failing to do the required due diligence when partnering with Binance.
Summary
- Paxos reached a $48.5M settlement with New York regulators
- SEC ended its probe into Paxos in July
- Paxos was under scrutiny over its Binance USD stablecoin
Paxos has resolved its legal dispute with New York authorities over its partnership with Binance. On Thursday, August 7, the issuer of PYUSD and BUSD reached a $48.5 million settlement with the New York Department of Financial Services.
New York regulators accused Paxos of failing to conduct sufficient due diligence on its partner, Binance. Under the terms of the settlement, Paxos will pay a $26.5 million fine and invest $22 million to strengthen its compliance program.
The two firms entered into a partnership in 2020, making Paxos the issuer of the BUSD token. Both Paxos and Binance marketed the token as a regulated stablecoin under U.S. law. At its peak, BUSD became the third-largest stablecoin, with over $23 billion in circulation.
However, in late 2022, regulatory scrutiny around BUSD intensified, with both the NYDFS and the U.S. Securities and Exchange Commission launching investigations. According to New York authorities, Binance failed to comply with anti-money laundering protocols. Simultaneously, the SEC alleged that BUSD was an unregistered security.
In February 2023, New York regulators ordered Paxos to halt minting new BUSD tokens. Paxos complied and continued processing redemptions, leading to a steady decline in BUSD circulation. Around the same time, Binance began distancing itself from the token.
Regulatory changes in the U.S. went in Paxos’ favor
The settlement with New York authorities comes amid a shift in the regulatory environment surrounding crypto in the U.S. Since the inauguration of President Donald Trump, top regulators have changed their approach to enforcement of crypto policy.
This includes the SEC, now under a Trump-appointed, pro-crypto Chairman Paul Atkins. In July 2024, the SEC ended its investigation into Paxos over the BUSD stablecoin.
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