Last Updated on 34 mins by John Piper

The New York Department of Financial Services is investigating Paxos Trust Company (New York-based stablecoin issuance behind Binance USD and Paxos Dollar) At this time, the motive for the probe is unknown. A spokesperson for NYDFS stated that the department was working to protect investors from the risks associated with investing on the cryptocurrency market.

Paxos has issued BUSD, a US Dollar-collateralized stablecoin, since partnering with Binance in September 2019. It is currently the third-largest stablecoin, with a market capital exceeding $16 billion. In 2015, the NYDFS issued Paxos a BitLicense which allows companies to transact digital currency-related business in New York.

Paxos claims these stablecoins have been backed entirely by US dollars and US Treasuries. The NYDFS wouldn’t launch the first investigation into the claims made by Paxos. Coinbase, a leading cryptocurrency exchange, reached an agreement with the NYDFS earlier this year. The company failed to supervise suspicious transactions and conduct background checks on customers.

This is in addition to the investigation into Paxos. The United States Securities and Exchange Commission (SEC), is also reportedly investigating Kraken. It is a leading cryptocurrency exchange in the U.S. and is being investigated for possible violations of U.S. legislation regarding the sale of securities. An anonymous source claimed that the investigation is underway and that a settlement could soon be reached. However, the exact tokens or cryptocurrency in question were not disclosed.

Gary Gensler, Chairman of the SEC, had stated that cryptocurrency regulation is about ensuring that digital assets lending platforms and cryptocurrency trading exchanges comply with the law. Kraken CEO Dave Ripley said that he did not intend to register Kraken with SEC as it does not offer securities. Gensler however noted that many cryptocurrencies, other than Bitcoin, are considered securities by SEC.

The regulatory landscape is constantly changing. It will be crucial for market players and exchanges to fully understand and adhere to the rules. This is especially important as the classification of cryptocurrency as securities remains unclear. Coinbase also reached a $100m settlement with the NYDFS after failing to monitor 100,000 suspicious transactions. They published a stablecoin guideline report following the collapse of Terra LUNA’s algorithmic stablecoin TerraClassicUSD and TerraLUNA’s ecosystem.

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