USDC issuer Circle alerted the New York State Department of Financial Services (NYDFS) that BUSD’s reserves weren’t sufficient.
According to a Monday report from Bloomberg, Circle issued a complaint to the NYDFS in August 2022, saying that Binance had not adequately managed its reserves to support its tokens..
Circle claims to have uncovered these issues by analyzing blockchain data, according to sources.
Both Circle and Paxos are regulated by the NYDFS, with the former operating the USDC stablecoin and the latter operating BUSD. Earlier in the day, Paxos was ordered to cease minting BUSD by the NYDFS, with separate reports indicating that the U.S. Securities and Exchange Commission had its own plans to file a lawsuit against the firm.
Paxos said in a statement that it “categorically disagrees with the SEC” about BUSD being a security, and is “prepared to vigorously litigate if necessary.”
Binance CEO Changpeng Zhao said he expects the BUSD market cap to decrease over time. In a series of tweets on Monday, Zhao told users that while the funds were safe, a ruling that BUSD is a security would have profound impacts on the wider crypto industry.
8/8 Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm.
— CZ 🔶 Binance (@cz_binance) February 13, 2023
Data from Nansen reported by CoinDesk shows that Binance faced $831 million worth of net outflows in the last 24 hours, as users rushed to withdraw their crypto held on the exchange.