Paxos, a leading regulated blockchain and tokenization platform, announced recently that it would end its partnership with Binance to issue the top stablecoin BUSD. Paxos was ordered by NYDFS to stop issuing new BUSD tokens due to irregularities. A number of DeFi initiatives responded to this order, with Aave the first to end the BUSD-based lending marketplace.
Aaave Freezes its BUSD Reserves
Marc Zeller submitted a governance proposal for Aave. It requested that the Ethereum network’s BUSD reserves be frozen. The proposal stated that although Paxos and BUSD were not a threat to Aave immediately, the freeze could have a negative impact on Aave V2 which is an Ethereum marketplace user.

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According to the proposal, the stablecoin supply from Paxos was going to decline and that inability to mint more tokens would affect the prospects of peg arbitrage. Aave felt that there was no real prospect of the stablecoin growing or being used in any way. Therefore, the best course of action would be to freeze its reserves and ask users to convert to another type of stablecoin from the protocol.

Aave (AAVE), a decentralized lending platform, allows users to lend, borrow, or earn interest on cryptocurrency assets. The platform works on a blockchain and acts like a money market where users can either borrow or lend. To borrow cryptocurrency from this platform, borrowers will need to pay fluctuating interest rates. Lenders contribute liquidity to the crypto markets and earn interest.
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More Lending Protocols in Queue
Due to their exposure to the BUSD stablecoin, it is expected that other DeFi lenders will follow a similar path. This category also includes Dexe, Balancer, Injective and Pancake Swap. BUSD is now a hot topic of discussion among market participants because of the widespread concern that regulatory agencies like New York Department of Financial Services, NYDFS, may soon place additional restrictions on stablecoins like USDT, TUSD and USDC.

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The U.S. watchdogs have taken a number of regulatory enforcement actions, including the order to stop minting. According to reports, the move was the result of a coordinated effort between the NYDFS and Securities and Exchange Commission (SEC) and other regulators in the United States. The SEC of Gary Gensler has begun to take legal action against the country’s staking of cryptocurrency. Recently, Kraken, a cryptocurrency exchange, was ordered to pay a $30 million fine and to cease all digital asset staking services to U.S. retail customers.
Also read: Rich Dad Poor Dad Author Predicts Valentine Day Massacre, Another Crypto Crash

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