New York regulators directed Paxos, the crypto company that issues BUSD to stop creating more BUSD tokens. BUSD otherwise known as Binance USD is a stablecoin backed by U.S. dollars on a one-to-one basis. BUSD is corporately owned by Binance.
Upon the development, Binance USD strayed slightly from its dollar peg Monday morning, trading as low as 98 U.S. cents. Data from CoinDesk reveals.
The stablecoin traded at a discount to rival tether, a sign that traders were converting their holdings to tether while looking for a way to quickly exit BUSD.
Investors King understands that this is part of the enlarged clampdown on the cryptocurrency industry by US regulators.
According to the Wall Street Journal, the Securities and Exchange Commission informed Paxos that it plans to sue the company for violating investor protection laws.
Clarifying its relationship with Paxos, Binanace stated on its website that BUSD is issued and owned by Paxos and that the crypto company only licenses its brand.
There were 6.2 million holders of BUSD as of Feb. 13, Data from the Binance platform shows.
Paxos said in a statement that it will stop issuing new BUSD on Feb. 21. and that it will end its relationship with Binance for the branded stablecoin BUSD.
It added that BUSD will continue to be redeemable through at least February 2024 for U.S. dollars or Paxos’ own stablecoin, Pax Dollar.
Commenting on the development, Kaiko Research Director, Clara Medalie noted that “Essentially, by halting the issuance of BUSD, there is no way for the stablecoin to grow. BUSD trading pairs will still be supported by Binance”.
She added that traders will move from BUSD to other suitable options. “Traders will gradually start to migrate to other stablecoins, which could be causing the discount on BUSD,” she concluded.
However, a section of the crypto community believed that BUSD discount could be short-lived, given Paxos won’t mint new coins but will continue to honour redemption.
