Paxos is being investigated by US authorities: report

Paxos is being investigated by US authorities: report

Paxos has been trying to obtain a national trust bank charter for some time. There were rumors that the company was denied the above license, which in fact it was denied.

To clarify speculation, Paxos was not asked to withdraw its application to the OCC to establish a national trust bank, nor was it denied establishment. Paxos continues to work constructively with the OCC.

– Paxos (@PaxosGlobal) February 8, 2023

Still, it appears that trouble could be brewing for the New York-based crypto company.

Investigation initiated

As a crypto company headquartered in New York, Paxos Trust Co. is regulated by the New York State Department of Financial Services (NYSDFS). The watchdog provides locally based companies with a BitLicence, which is mandatory for companies wishing to operate in their jurisdiction.

All stablecoin-related operations must fully comply with the NYSDFS stablecoin-related guidelines – issued after the ignominious collapse of TerraUSD – as well as all other regulatory guidelines. In return, the New York regulator also receives regulatory insight into the businesses of these companies.

Recently, the NYSDFS opened an investigation into Paxos's dealings, although the exact scope of the investigation is unclear, according to Bloomberg.

A spokesman for Paxos declined to comment on the investigation itself, saying it was ongoing. However, they assured that they are in constant contact with regulators regardless of any ongoing investigations.

“The department is in constant contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from the crypto market volatility we are experiencing.”

Reason for investigation Unconfirmed

It's worth noting that while Paxos is perhaps best known for powering Binance's stablecoin, it also has its own USD-backed stablecoin, as well as a gold-backed cryptocurrency and crypto exchange, itBit. Therefore, the present research may be completely independent of BUSD or even stablecoins in general.

When reached for comment, Binance reiterated that BUSD is one of the most transparent stablecoins in existence and that it is fully supported.

“BUSD is a 1-to-1 backed stablecoin that is one of the most transparent stablecoins in existence.”

Binance also stated that it will continue to monitor the situation involving Paxos and clarify the circumstances as necessary.

Nonetheless, both Binance and Paxos have maintained silence regarding the subject of the investigation and will likely continue to do so unless absolutely necessary.

It is also important to note that an investigation does not mean that misconduct actually occurred. If the probe proves that no mischief occurred, it can even be seen as evidence of a company's strict adherence to the rules.

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