At the time of writing, the motive behind the NYDFS investigation is unknown.
The New York Department of Financial Services (NYDFS), the department of the New York state government responsible for regulating financial services and products, has reportedly launched an investigation into stablecoin issuer Paxos.
According to the Bloomberg news report shared on February 10th, the news was revealed by a person familiar with the matter. However, the individual who wanted to remain anonymous noted that the motive or scope of the investigation was unclear.
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Paxos Trust Company is known for issuing two major stablecoins, Binance USD (BUSD) and Paxos Dollar (USDP). Based on the market capitalization, BUSD is currently listed as a seventh cryptocurrency with a market cap of over $16 billion. On the other hand, USDP is listed as the 62nd cryptocurrency, with a market capitalization of around $880 million.
When asked about the investigation, an NYDFS spokesperson declined to comment on the matter but highlighted that the department is actively working on protecting customers from risks associated with investing in cryptocurrencies.
The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.
It is worth noting that, in 2015, Paxos received NYDFS “BitLicense,” which allows firms to provide digital currency-related services in New York.
Paxos hasn't issued any comments on the news about the NYDFS investigation. However, on February 9th, the company denied rumors claiming that the US Office of the Comptroller of the Currency (OCC) asked Paxos to “withdraw its application for a national trust bank charter.”
The stablecoin issuer may not be the only crypto-related firm under the microscope of NYDFS. At the end of January, the news broke that New York financial regulators launched an investigation into the crypto exchange Gemini.
