USDC issuer Circle reportedly tipped NYDFS in 2022 regarding Binance-Paxos BUSD issues

• Circle issued a complaint to the New York State Department of Financial Services highlighting Binance’s mismanagement of reserves.
• The NYDFS on Monday ordered Paxos to cease the issuance of Binance BUSD stablecoin following failure to conduct periodic risk assessments.
• BUSD noted a slight shift in its peg as the reports surfaced; saw a drop to $0.995.

Binance, being the world’s biggest cryptocurrency exchange, is also prone to catching fire quickly. And it did on Monday after the New York state regulators took action against the issuer of its stablecoin, Paxos. Emerging reports now suggest an entirely different entity might have been at play for a while now.

Circle against Binance-Paxos

According to a report from Bloomberg, USD Coin (USDC) issuer, Circle, had a hand in the Binance-Paxos case. The stablecoin rival apparently issued a complaint to the New York State Department of Financial Services (NYDFS). Circle highlighted that Binance had no airtight management when it came to its own tokens.

Consequently, months after the complaint, the regulator directed BUSD issuer, Paxos, to cease the issuance of the stablecoin. According to Circle, Binance lacked enough reserve for the cryptocurrency tokens it had issued.

On Monday, the NYDFS deemed Paxos unfit for operations of BUSD, stating,

“[Lack of operation] in a safe and sound manner based on extensive supervisory engagement, a recent examination, and failure of Paxos to remediate material issues related to Paxos-issued BUSD in a timely manner.”

NYDFS went on to add that Paxos did not address key deficiencies, which led to the ceasing of the Paxos-issued BUSD. However, Paxos is still allowed to manage redemptions of the product. 

Binance also admitted last month that due to periodic rebalancing, Binance-Peg BUSD did not always seem to be backed by Paxos-issued BUSD. Binance clarified this as a simple timing mismatch in the backing of Binance-peg BUSD with BUSD, with the gap at times being larger than $1 billion.

BUSD slips against the dollar

Following the NYDFS decision to end BUSD issuance from Paxos, the stablecoin’s value took a hit, and BUSD went tumbling to as low as $0.995. However, its value against the dollar is recovering, with 1 BUSD worth nearly $0.9989 at the moment.

USDC/USD 1-day chart

BUSD’s competitors, such as USDC, Tether (USDT) and DAI, remained unfazed by this development. Although USDC’s peg slipped slightly on Monday, its value recovered over the next few hours to bring the peg to $0.9996.

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