The stablecoin wars are back, and this time they’re using regulators against each other. The SEC and the New York Department of Financial Services (NYDFS) are both coming after Paxos, and according to Bloomberg, Circle snitched to the regulators.
Paxos is a regulated and fully-backed stablecoin issuer that issues its own tokens along with Binance's US Dollar-pegged stablecoin, BUSD, on Ethereum. Considering Binance’s reputation, it's a bit odd that Paxos also mints and distributes BUSD, but there's a lot of demand for the token and it never hurts to be on Binance CEO CZ’s good side.
Circle issues USDC, the second-largest stablecoin. Last year, Binance halted all its USDC trading pairs and converted all the USDC on its platforms to BUSD. You’d have to think Circle has been waiting to strike back at Binance ever since, and now they have.
Binance's BNB token is down ~7% against BTC and ETH in the hours since the NYDFS announced its investigation and Paxos declared it will stop minting BUSD. The extent of the NYDFS’ investigation is still unknown, but Paxos maintains it’s not in trouble and was only warned to stop issuing BUSD.
What's weird is that Circle had to snitch at all. CZ already admitted that BUSD has not always been fully backed. Paxos wasn’t exactly hiding that it mints BUSD. Maybe regulators are looking for a new crypto friend since Sam Bankman-Fried stopped coming around.