The New York State Department of Financial Services (NYDFS) has launched an investigation into Paxos Trust, the issuer of Pax (USDP) and Binance (BUSD) stablecoins. The regulator did not disclose the purpose and reasons for the investigation.
According to Bloomberg, the NYDFS has launched an investigation into the activities of Paxos, the third largest stablecoin issuer, but declined to comment on the purpose, causes and possible consequences of the investigation. A spokesman for the NYDFS told Bloomberg that the department is in constant contact with all regulated entities to assess any potential risks to consumers and institutions associated with volatility in the cryptocurrency market.
Bloomberg reporters speculate that the NYDFS investigation may be linked to a 2021 decision by the Office of the Comptroller of the Currency (OCC) that announced a preliminary conditional approval applications for the creation of the charter of the national trust bank Paxos National.
A year later, amid global problems in the cryptocurrency market, the OCC changed its mind about acceptable permissions for companies from the crypto sector. Acting Minister Michael Hsu said that the collapse of the algorithmic stablecoin TerraUSD (UST) helped expose serious vulnerabilities in the crypto industry and noted that “stablecoins are not really as stable as their issuers claim.”
Despite the fact that NYDFS and OCC are formally different government agencies, some industry participants are convinced that their actions are connected. For example, several respondents told Bloomberg on condition of anonymity that the OCC asked Paxos to withdraw its application to set up a trust bank. Since Paxos refused, and OCC has no formal reason to withdraw it, the NYDFS, in the form of an investigation, plans to influence the decision of the stablecoin issuer.
Earlier, the Federal Reserve Bank (FRB) of New York published a study titled “The Implications of Digital Assets for Financial Stability”, in which it stated that the rise in the popularity of stablecoins is a threat, as it increases the risks for the financial system as a whole.
Source: Bits
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