According to a Monday Bloomberg report, Circle was the cause of ongoing issues that Binance had with American regulators. The firm behind the USD Coin (USDC) stablecoin purportedly reported to the New York State Department of Financial Services in 2022 about the competing stablecoin reserves.
Per reports, the blockchain data monitoring company Circle noticed inconsistencies in Binance’s on-chain stablecoin holdings. These differences suggested that Binance does not have enough cryptocurrency on hand to support all of its tokens, including the stablecoin Binance USD, in full.
Circle’s moves were made before the US Securities and Exchange Commission intended to sue Paxos on the grounds that BUSD was an unregistered security.
BUSD was “not a security under the federal securities laws,” according to Paxos, which further noted that BUSD released by Paxos is always 1:1 backed with US dollar-denominated reserves, fully segregated, and stored in bankruptcy distant accounts.
“We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary,” Paxos affirmed.
Binance ends partnership with Paxos, at least for the time being
On February 13, however, the NYDFS made public its own regulatory action, directing Paxos to “cease minting Paxos-issued BUSD” and restating its demand that any tokens released under its regime be completely backed by cash or cash equivalents.
In addition, the NYDFS found that Paxos was unable to manage BUSD in a safe and reliable way based on significant supervisory involvement, a recent inspection, and Paxos’s inability to promptly address material concerns connected to BUSD it had issued.
As a result, Paxos and Binance had to terminate their longstanding relationship at the request of the New York State Department of Financial Services (NYDFS). CZ, however, asserted that BUSD will continue to be supported on the Binance exchange for the foreseeable future.
The trading volume of the Circle-owned USD stablecoin (USDC) has increased by more than 67.74% in less than 24 hours after it purportedly caused Paxos, the issuer of BUSD, a competitor stablecoin, to cease minting new coins.
While USDC has a market cap of $40.9 billion and Binance USD (BUSD) has a market cap of $15.7 billion, Tether USDT has a market cap of more than $68 billion. BUSD has fallen by 0.05% in the last 24 hours after de-pegging to $0.9995 on Coinmarketcap.
This competition between Binance crypto exchange and Circle has been boiling for a while, since Binance implemented a rule last year that automatically converted all deposits of USDC and some other stablecoins into BUSD, therefore lowering Circle’s market share.
Circle has not yet made any public comment on the situation.