Stablecoins not the target in BUSD crackdown: Matrixport head of research

Crypto financial service Matrixport’s head of research believes regulators are not targeting all stablecoins with the regulatory crackdown on BUSD issuer Paxos.

Crypto financial services Matrixport's head of research believes the recent scrutiny of Paxos and its Binance USD (BUSD) token is not a direct attack on stablecoins themselves. 

In a Feb. 14 analysis, Matrixport’s Markus Thielen suggested that BUSD issuer Paxos Trust Company may not have been stringent enough with its oversight of the token.

He added that the issue “does not appear to be around stablecoins” in itself.

“Paxos had violated its obligation to conduct tailored, periodic risk assessment and due diligence of Binance and Paxos-issued BUSD customers,” Thielen argued.

On Feb. 13, the New York Department of Financial Services (NYDFS) ordered Paxos to halt the issuance of BUSD “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.”

Paxos also recently confirmed that on Feb. 3, the United States Securities and Exchange Commission (SEC) sent a Wells notice to the stablecoin issuer over its alleged failure to register the offering under federal securities laws.

Thielen notes that BUSD has issued $11 billion on Ethereum, but there’s also $4.8 billion of Binance-Peg BUSD Token on BNB Smart Chain. Binance provides a pegged token service in which BUSD is locked on Ethereum and Binance-Peg BUSD is issued on BNB Chain and other blockchains such as Avalanche and Polygon.

“It appears that NYDFS is now worried that the $4.8 billion might not be properly backed or have had issues with being 1:1 backed,” he said.

However,Paxos has stated as recently as Feb. 13, that, “BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts.” 

In a statement to Cointelegraph, Binance reiterated this stance, saying, “BUSD is a 1 to 1 backed stablecoin that is one of the most transparent stablecoins in existence.”

Thielen notes some of the regulatory actions could have also been sparked by the Jan. 24 incident when Binance mixed customer funds with collateral.

The recent actions against BUSD have still caused some to believe that other stablecoins could be in trouble.

Paxos recently stated that besides the current issue around BUSD, “there are unequivocally no other allegations against Paxos.”

Meanwhile, USD Coin (USDC) issuer Circle’s chief strategy officer and head of global policy, Dante Disparte, told Cointelegraph:

“Circle maintains that USDC is a regulated dollar digital currency issued as stored value under U.S. money transmission law.”

“Facts and circumstances in any type of regulatory action like this are all different, as are the structural and regulatory considerations with each of the cryptocurrencies that are in circulation around the world,” Disparte added.

Related: Paxos ‘categorically disagrees’ with the SEC that BUSD is a security

Thielen has however urged the industry not to be overly concerned about the future of BUSD.

“Binance has shot itself a little bit in the foot here, but they are working on it and it should be resolved. So should we be really worried?” Thielen said.

“I don’t think so. Is the peg breaking? NO. We are no longer in a bear market where you worry about downside, in bull markets, you focus on the upside,” he added.