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Circle warned NYDFS about BUSD crackdown on Binance reserves: report
Circle – the issuer of the world's second-largest stablecoin, USDC – is said to have warned the New York Department of Financial Services (NYDFS) last fall that Binance was mismanaging its token reserves. This came months before Monday's announcement that Paxos was terminating its relationship with Binance related to BUSD following orders from New York regulators. Circle's private warning As reported by Bloomberg, USDC alerted the NYDFS to blockchain-based signs that Binance did not have enough crypto in its reserves to support the tokens it had issued to customers. These tokens include Binance-pegged Bitcoin, Ether, USDC, BUSD…
Circle warned NYDFS about BUSD crackdown on Binance reserves: report
Circle – the issuer of the world's second-largest stablecoin, USDC – is said to have warned the New York Department of Financial Services (NYDFS) last fall that Binance was mismanaging its token reserves.
This came months before Monday's announcement that Paxos was terminating its relationship with Binance related to BUSD following orders from New York regulators.
Circle's private warning
AsreportedFrom Bloomberg, USDC alerted the NYDFS to blockchain-based signs that Binance did not have enough crypto in its reserves to support the tokens it had issued to customers. These tokens include Binance-pegged Bitcoin, Ether, USDC, BUSD and other derivative coins intended to be circulated on Binance's own network, BNB Smart Chain.
Binance does not necessarily have to deny such claims: in January, itrecognizedthat there were times when its Binance peg BUSD was not fully collateralized and up to $1 billion was missing from its reserves.
Circle's warning claimed that USDC was also at times undercollateralized by Binance. According to the source contacted by Bloomberg, Binance once backed $1.7 billion worth of Binance Peg USDC, using only $100 million of actual USDC as collateral.
BUSD and USDC are both stablecoins - the value of crypto assets is pegged to the US dollar. While USDC is issued directly by Circle, Paxos issues tokens and holds reserves in conjunction with BUSD. Only Binance-peg USDC and Binance-peg BUSD are issued directly by Binance.
However, when regulators cracked down on BUSD on Monday, the NYDFS saw fitGoalPaxos. In an email to Bloomberg, the department claimed that Paxos "fails to operate BUSD in a safe and sound manner based on comprehensive regulatory measures" and fails to resolve issues related to Paxos-issued BUSD in a timely manner.
Paxos willfinishMinting new BUSD starting February 21, after which BUSD holders will have at least another year to cash out their holdings for either Dollar or Pax Dollar (USDP) – another Paxos stablecoin.
Circle VS Binance
The latest enforcement action against BUSD could work in Circle's favor, reversing the fallout from Binance's move to delist a number of stablecoins - including USDC - in September.
The delisted stablecoins would continue to be supported by Binance but would be automatically converted to BUSD once they arrived on the exchange. While Circle CEO Jeremy AllaireclaimsThat was good for USDC at the time, only for BUSD's share of the stablecoin marketgrowthas a result – at the expense of USDC.
As BUSD is set to expire, Binance will be forced to change its treatment of stablecoins sent to its platform. The exchange's CEO, Changpeng Zhao, has already done so confirmedthat the company will make product adjustments, including moving away from BUSD.
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