The Aave lending protocol community will consider proposal to freeze the use of Binance USD (BUSD) as collateral amid pressure SEC on Paxos, the exchange’s stablecoin issuer partner.
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The initiator explained the risks of depegging and arbitrage in light of the anticipated zeroing of the asset’s circulating supply. BUSD has no growth prospects, he added.
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As of writing, the proposal had more than 1,300 views, nine approvals and four comments, all of which were supportive. One user even urged the outright liquidation of BUSD to reduce potential risks.
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On February 13, the stablecoin briefly traded below $0.995, in line with its standard deviations from parity, according to CoinGecko.
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On February 10 it emerged that the New York State Department of Financial Services initiated an investigation into the company.
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Subsequently, the regulator ordered Paxos to stop issuing BUSD. Its representatives confirmed that they were terminating their partnership with Binance regarding the stablecoin, and would halt new coin issuance from February 21. At the same time, the firm will continue to support buyback and conversion operations at least until February 2024.
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As The Wall Street Journal reported, the SEC planned to sue Paxos over its involvement in issuing BUSD.
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Reutersfound that Paxos did not secure the security of the stablecoin, which could have led to improper actions, according to NYDFS.