Circle reportedly alerted the New York Department of Financial Services about Binance’s tokens.
The USDC issuer warned the NYDFS about Binance not having enough crypto in its reserves to back its tokens.
Binance’s stablecoin partner Paxos was ordered to end its relationship with the exchange earlier today.
Circle and Paxos are both regulated by the New York Department of Financial Services.
Circle, the crypto giant behind the world’s second-largest dollar-pegged stablecoin USD Coin (USDC), reportedly tipped off the New York Department of Financial Services (NYDFS) about potential issues at rival firm Binance. The complaint to the NYDFS, which was issued in the autumn of last year, included details about the mismanagement of the reserves that backed Binance’s tokens.
Circle: Binance’s reserves not enough to support its tokens
According to a report by Bloomberg, USDC issuer Circle alerted the New York regulator about some concerning blockchain data about the world’s largest crypto exchange’s reserves. A person familiar with the matter revealed that Binance had failed to store enough crypto assets in its reserves to support the tokens that it had issued.
News of Circle’s complaint to the NYDFS comes just hours after the financial watchdog ordered Binance’s stablecoin partner Paxos to end its relationship with the crypto exchange and stop minting BUSD. Both the stablecoin issuers are regulated by the NYDFS.
The competition between Circle and Binance started heating up in September last year after the crypto exchange introduced the BUSD Auto-Conversion policy, which automatically converted users’ existing and future balances of USDC, USDP, and TUSD, to its own BUSD at a 1:1 ratio. This move led to a considerable reduction in USD Coin’s market share. Interestingly, Circle’s tip-off to the NYDFS reportedly came around the same time that this policy was unveiled.
Binance came under fire last month over the mismanagement of its wallets. As reported earlier, the exchange had essentially commingled funds by holding user deposits and token collateral in the same cold wallet. The mistake was acknowledged and subsequently rectified by the exchange.