New York Regulator Turns Attention to Stablecoin Issuer Paxos

According to Bloomberg, the investigation's entire breadth is unknown. However, US officials have begun investigating crypto businesses about how they handle their customers' digital assets. The investigation has accelerated in the aftermath of Sam Bankman-crypto Fried's empire's demise.

Paxos Trust is the creator of its own stablecoin, Pax dollar (USDP), as well as the third-largest stablecoin, Binance-branded stablecoin BUSD.

A spokesperson for the NYDFS declined to comment on ongoing investigations, but told CoinTelegraph that “the department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from the crypto market volatility we are experiencing.”

Following the collapse of the Terra algorithmic stablecoin in May, which wiped out billions of dollars from the larger cryptocurrency market, the NYDFS refocused its attention on the $150 billion stablecoin business. Since then, authorities have expressed worry that stablecoins without enough reserve support are vulnerable to bank runs.

About Paxos

Paxos is a New York-based exchange and stablecoin issuer, and its position as a registered financial services firm in the United States permits it to provide a variety of products, including crypto trading and settlement, as well as custody services. In addition, the company may issue tokenized securities and provide its consumers access to the conventional banking system.

Because of its unique position, Paxos has attracted large corporate customers like Interactive Brokers, Revolut, Crédit Suisse, Société Générale, and StoneX. It has also partnered with Binance, the world's most prominent crypto exchange, to get clearance from the New York regulator to establish a USD-backed stablecoin.

NYDFS to Gemini

Separately, New York authorities are looking into Gemini for making “false and deceptive” assertions about whether customer money is guaranteed by the government.

According to the New York Department of Financial Services (NYDFS), Gemini's communications with Earn clients used unclear language about their GUSD stablecoin deposits being insured by the Federal Deposit Insurance Corporation (FDIC).

Customers complained that Gemini failed to differentiate between the FDIC status of its own bank deposits and those of its high-yield program. In other words, the representations imply that FDIC protection is available for Gemini Dollar (GUSD) assets, despite the fact that the agency does not guarantee brokerage accounts.

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