Paxos Trust Company Under Investigation: What You Need to Know

Investigative Storm Brewing

Paxos Trust Company, the heavyweight stablecoin issuer located in New York, is reportedly under scrutiny by the New York Department of Financial Services (NYDFS). While the reasons behind this investigation remain as murky as a New York City rainstorm, insiders have shared that the probe aims to tap into the risks consumers face in the unpredictable world of cryptocurrency.

Hitting the Market: Paxos and its Stablecoins

Since its inception, Paxos has made quite a name for itself by launching BUSD— a U.S. dollar-backed stablecoin—in partnership with Binance back in September 2019. Today, BUSD stands tall as the third-largest stablecoin, boasting a market cap over $16 billion. In 2018, they introduced the Paxos Dollar (USDP), which continues to circle around as the sixth-largest stablecoin with a cozy market cap of about $875 million.

Other Ventures and Innovations

• PAX Gold (PAXG): A gold-backed Ethereum token that flaunts both the digital and the tactile.
• ItBit Exchange: A digital asset exchange launched alongside Paxos in 2012.
• BitLicense: The NYDFS issued Paxos a BitLicense back in 2015, enabling them to legally join the digital currency party in New York.

Ongoing Relations with the OCC

Rumors have emerged indicating potential pressure from the U.S. Office of the Comptroller of the Currency (OCC) regarding Paxos’ application for a full banking charter. Despite the grapevine’s murmurings, Paxos has publicly clarified that they have not been asked to withdraw their application nor received any official rejection.

Consumer Protection at the Forefront

According to an NYDFS spokesperson, the department remains committed to safeguarding consumers from the risks associated with the market’s incessant volatility. They’ve actively communicated with regulated entities to understand looming vulnerabilities, especially since shady dealings are anything but uncommon in the bustling crypto arena.

Comparative Investigations: A Wider Concern

If it’s any consolation for Paxos, they’re not alone in the hot seat. Just shortly before, Coinbase had to cough up a hefty $100 million settlement with the same regulatory body after being called out for failing to scrutinize suspicious transactions. Following the collapse of the Terra LUNA ecosystem, NYDFS also released stablecoin guidelines to reinforce issuer transparency.

Final Thoughts

Paxos has publicly stated that their BUSD and USDP reserves are, in fact, backed entirely by U.S. dollars and U.S. Treasuries. Nonetheless, the unfolding drama surrounding their investigation has left many crypto enthusiast biting their nails. Will Paxos emerge unscathed, or will this investigation lead to substantial regulatory implications for the broader stablecoin market? Time will tell, but one thing is for sure—crypto never sleeps, and neither do the regulators.