TLDR:
- Market: Binance USD (BUSD), once a top stablecoin, halted production in February 2023 under regulatory duress. Its issuer, Paxos, agreed to a settlement on August 7, 2025, for $48.5 million with NYDFS for compliance with respect to Binance.
- Narrative: Paxos’ $48.5 million settlement with the NYDFS settled claims of the lack of due diligence on Binance and poor anti-money laundering measures in the BUSD partnership.
Paxos Trust Company, the New York-based issuer of Binance USD (BUSD), settled with the New York Department of Financial Services (NYDFS) on August 7, 2025, for $48.5 million to end a two-and-a-half-year ordeal regarding its connection to Binance. The consent package, which includes a $26.5 million penalty and a $22 million investment in compliance improvement, involves Paxos’s ineffective screening of Binance and systemic failures in its anti-money laundering (AML) program. What was once a leading stablecoin, along with USDT and USDC, BUSD’s failure shows that regulatory problems plague stablecoins.
The BUSD scandal was underway when, in 2018, Paxos joined forces with Binance to launch the dollar-backed stablecoin, with Paxos issuing and taking custody and Binance distributing. The NYDFS investigation indicted underlying weaknesses: Paxos did not, on its own, verify Binance’s reporting of U.S. user limitations, excluding $1.6 billion in criminal flow via Binance from 2017 to 2022, including flows from sanctioned entities and Ponzi schemes. NYDFS was also condemning Paxos’s “unsophisticated” AML program, which did not flag coordinated criminal accounts and respond reasonably to requests for information from law enforcement agencies and raised the risk of money laundering.
As per the agreement, Paxos will pay a $26.5 million penalty and spend three years’ worth of $22 million on AML system enhancements, transaction monitoring, and third-party partner controls. When contacted for comment, Paxos said the incidents were old and fully remediated, and there was no consumer harm, and the company was happy to have the issue behind them.
BUSD’s ride, from its market-capitalization zenith of rivals USDT ($164 billion) and USDC ($63 billion) to its February 2023 shutdown, is a warning. The New York State Department of Financial Services (NYDFS) ordered Paxos to discontinue issuing BUSD in 2023 under Binance’s lack of controls, and the “first orderly wind-down of a stablecoin,” as the regulator described it, followed. The U.S. Securities and Exchange Commission (SEC) issued a Wells Notice in 2023 alleging BUSD was an unregistered security, but closed the investigation in 2024. Binance was fined a massive $4.32 billion for AML and sanctions infractions in November 2023.
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