USDC stablecoin issuer Circle has alerted the New York Department of Financial Services (NYDFS) that Binance has mismanaged its token reserves.
According to a Bloomberg report, it details that Circle made it aware to the NYDFS that Binance allegedly does not hold enough of several cryptocurrencies in reserves to support its tokens issued to investors, with Bitcoin, Ethereum, USDC and BUSD being cited as coins.
Circle alleges that Binance supports these tokens on its BNB Smart Chain network and has recently been put under question by investors into its proof-of-reserves following the collapse of FTX. It issued this warning in December last year before taking the report down from its site shortly after.
This is not the only issue that Binance has been dealing with over the past week, as it was revealed that its BUSD stablecoin token will no longer be issued by blockchain firm Paxos. This is after it was the subject of an investigation by the Securities and Exchange Commission (SEC) and was the body that ordered the cancellation of minting the BUSD token.
Circle’s allegations against Binance also state that the BUSD token was not fully backed, with $1 billion of reserves alleged to be missing.
The complaint to the NYDFS also claims that USDC tokens held by Binance were undercollateralized, with one source close to the matter stating that just $100m worth of USDC was used as collateral to the alleged $1.7bn worth of USDC which was held.
Now with Paxos under investigation by both the SEC and NYDFS, the BUSD token will no longer be minted from 21 February onwards.
“DFS has ordered Paxos to cease minting Pacos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD,” said a NYDFS statement.
“The Department is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocol.”
Paxos released a statement in response to the SEC and NYDFS probes, in particular regarding the SEC’s charges against BUSD being listed a security, which goes against SEC protocols.
The statement reads: “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 prioritised the safety of its customers’ assets. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.”
