Investors have become spooked after the regulatory action that was recently taken against Paxos and Binance because of their licensing agreement for the Binance USD (BUSD) stablecoin.

The New York Department of Financial Services (NYDFS) and the SEC launched a crackdown against the dollar-pegged stablecoin, which saw the native token of Binance i.e. BNB record declines of 5%.

The response

The announcement also prompted traders to withdraw their funds en masse from the world’s largest crypto exchange.

Nasen put together data showing that almost $356 million had been withdrawn from the crypto exchange in just 24 hours because of the ongoing regulatory scrutiny.

Weekly withdrawals quadrupled the said amount. BNB is the native token of the Binance crypto exchange and allows users to get perks, such as reduced trading fees.

According to CoinGecko, the price of the exchange token is at $291.47, after it recorded a decline from $301.

The week has proven to be quite tough for the BNB token overall, as the last seven days have seen record losses of about 10%.

As far as overnight liquidations are concerned, Coinglass’ data showed that leverage BNB traders took a hit of about $2.09 million.

Nonetheless, the coin remains one of the top five largest crypto tokens in terms of market capitalization, as its total value is around $45 billion.

Stablecoin woes

Paxos confirmed that the SEC had sent it a Wells Notice, which indicates that the regulatory agency plans on taking legal action against the company for selling the BUSD stablecoin.

The SEC has alleged that the stablecoin is actually a security that was not registered by Paxos before it began offering it and the company has also been accused of violation of investor protection laws.

Changpeng Zhao, the CEO of Binance, tweeted that if BUSD was declared security, the entire crypto industry would have to deal with the impact.

Paxos’ details

Amidst the reported action of the SEC, Paxos was directed by the NYDFS to stop issuing any more BUSD. The company said in a statement that it does not agree with the SEC’s labeling of BUSD as a security.

The Binance-branded stablecoin was introduced in 2019 and as per a third-party audit conducted in December, they are in the custody of Paxos and held in the form of US treasury bills and debt.

The company will stop the process from February 21st, but it assured its clientele that they would be able to redeem their stablecoins until February next year.

This move appears to be the latest step in what seems to be an increase in regulatory action by the authorities in the United States.

The Securities and Exchange Commission (SEC), in particular, appears to be becoming more active, as the previous week saw it reach a $30 million settlement with the Kraken crypto exchange.

This was related to the crypto staking services that the exchange offers, which has prompted Kraken to end its services in the United States.