Crypto firm Paxos Trust Company LLC Monday announced the New York Department of Financial Service (NYDFS) ordered them, effective February 21, to cease issuing new BUSD tokens with fellow crypto firm Binance. However, Paxos “will continue to manage BUSD dollar reserves.” 

Paxos claimed that, throughout the company’s existence, it “has always prioritized the safety of its customers’ assets.” Further, Paxos assured its customers that, through at least February 2024, it will remain fully supportive of BUSD and BUSD will be redeemable for existing customers. 

The NYDFS said in a statement:

DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD. In response, on February 13, 2023, Paxos notified customers of its intent to end its relationship with Binance for BUSD.

In addition to the NYDFS’ order the US Securities and Exchange Commission (SEC) issued Paxos a Wells Notice on February 3, which alleged BUSD is an “unregistered security.” Specifically, the SEC’s notice said they may recommend action against Paxos regarding BUSD because, allegedly, “BUSD is a security and that Paxos should have registered the offering of BUSD under the federal securities laws.” 

However, Paxos expressed its disagreement with the SEC’s allegation that BUSD is a security. In response to the SEC’s notice, Paxos stated:

Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws. This SEC Wells notice pertains only to BUSD. To be clear, there are unequivocally no other allegations against Paxos. Paxos has always prioritized the safety of its customers’ assets. BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.

While Paxos announced it will terminate its relationship with Binance regarding BUSD, Binance stated it “will continue to support BUSD for the foreseeable future.” Additionally, Binance clarified that Paxos, not Binance, “wholly own[s] and manage[s]” BUSD, and thus Paxos is the sole party to the SEC’s looming lawsuit.

The SEC’s notice issued to Paxos comes amidst the agency’s cryptocurrency crackdown, which also includes Nexo Capital, FTX, Celsius, Genesis, Gemini, and CoinDeal.