Stablecoin giant Circle Internet Financial Ltd. filed a complaint with the New York State Department of Financial Services last year regarding rival crypto firm Binance’s mishandling of reserves for its own tokens. The complaint was filed several months before the regulator instructed another stablecoin issuer to terminate its partnership with the trading platform.
According to Bloomberg, Circle, which runs the USDC stablecoin and shares a regulator with Binance-branded stablecoin company Paxos Trust Co., informed the watchdog last autumn about problems its team had revealed in blockchain data that showed Binance did not store enough cryptocurrency in reserve to support tokens it had issued.
Paxos Directed to End its Relationship with Binance
The New York regulator announced on Monday that it had ordered Paxos to discontinue its partnership with Binance, citing many unresolved issues pertaining to Paxos’ management of its partnership with the exchange in regards to BUSD, the stablecoin that Paxos issues under Binance’s branding. The regulator noted in that statement that neither it nor Paxos are authorized to create a token issued by Binance to serve as a proxy for BUSD.
The NYDFS decided that Paxos was not able to operate Paxos-issued BUSD in a safe and secure manner based on significant supervisory involvement, a recent review, and Paxos’s failure to promptly address material concerns connected to Paxos-issued BUSD. Paxos failed to fix critical issues, necessitating additional Department action, including an order for Paxos to cease minting BUSD issued by Paxos.
The Department is closely watching Paxos to ensure that the company can conduct redemptions in an orderly manner while adhering to increased, risk-based compliance measures. Last month, Binance confirmed that it had previously undercollateralized the reserves for its version of BUSD, known as Binance-peg BUSD, resulting in a situation in which it regularly minted new B-Tokens without having first locked up the matching collateral in a designated wallet.
The B-Token version of Circle’s USDC was also affected, according to Bloomberg, which mentioned that at one point, Binance had only $100 million in stored collateral to cover $1.7 billion in Binance-pegged USDC. As a result, Binance will cease minting new Binance-pegged BUSD, a Binance spokesperson announced on Monday, but would not alter its auto-conversion policy. They argued that B-Tokens have always been fully backed, though reserves were not always accessible because they were not always held in a single, specialized wallet in real-time.
