Circle Issued Complaint Against Binance Over Mismanagement of Reserves

Reported by Bloomberg, Stablecoin issuer Circle has issued a complaint to the New York State Department of Financial Services (NYDFS) regarding rival crypto firm Binance's mismanagement of reserves for its own tokens.

Circle, which operates the $USDC stablecoin, alerted the NYDFS watchdog last autumn about the issues it had discovered in blockchain data that showed Binance was not storing enough crypto in reserve to support the tokens it had issued.

Yesterday, the NYDFS directed Paxos, a Binance-branded stablecoin firm, to end its relationship with Binance citing "several unresolved issues related to Paxos' oversight of its relationship" with the exchange. The regulator determined that Paxos was unable to operate $BUSD in a safe and sound manner, and ordered Paxos to cease minting Paxos-issued $BUSD. The NYDFS is monitoring Paxos closely to ensure that the company can facilitate redemptions in an orderly fashion subject to enhanced compliance protocols.

Binance mints billions of dollars' worth of its own version of Binance-peg $BUSD, which are supposed to be backed 1-to-1 by locked reserves of the coins they're based on. However, Binance has faced issues with undercollateralized reserves for its $BUSD. Binance has since implemented a policy to transfer reserve assets into dedicated collateral wallets.

As a result of the Paxos change, Binance will stop minting new Binance-peg BUSD but will not change its auto-conversion policy.