Following regulatory actions against Paxos by the New York Department of Financial Services, major cryptocurrencies like BNB, Solana, Polygon, and Ether experienced a downturn, marking a divergence from equity markets. Despite the selloff, certain DeFi tokens, including MKR, CRV, AAVE, and particularly LQTY, exhibited gains, potentially indicating a shift towards decentralized stablecoins with less regulatory exposure.
Crypto Market Plunges After Regulatory Crackdown on Paxos and BUSD
New York, February 13, 2023 - The digital asset market is reeling after the latest regulatory crackdown by the New York Department of Financial Services (NYDFS), which ordered Paxos to cease issuing its popular BUSD stablecoin. The move has sent shockwaves through the crypto industry, leading to a sharp sell-off across major tokens.
According to data from The Defiant Terminal, the native token of Binance's Ethereum-compatible blockchain, BNB, plummeted by 10% on Monday. Other notable losers included Solana and Polygon, which both lost around 8%, and Ether, which fell by approximately 3%. Notably, Bitcoin remained relatively stable, dropping by only 1%.
This selloff marks a significant divergence from the recent trend of crypto prices moving in tandem with equity markets. While the Nasdaq and S&P 500 indices closed Monday with gains of around 1%, the crypto market experienced a widespread decline.
The regulatory action against Paxos and BUSD has particularly impacted tokens that have experienced a strong rally in recent weeks. Layer 2 network Optimism's OP, which reached an all-time high earlier this month, dropped by over 13%. Rocket Pool, Lido, and Frax, all of which have gained at least 90% since January 1, shed more than 10% of their value on Monday.
However, a select few tokens bucked the downward trend. DeFi heavyweights MKR and CRV posted gains of 9%, while AAVE rose by 2%. Notably, LQTY, the governance token of the Liquity protocol, surged by an impressive 45%.
Analysts attribute the strength of MKR and LQTY to their decentralized stablecoin offerings, which are perceived to have less exposure to regulatory scrutiny. Maker and Liquity have designed their stablecoins to minimize reliance on centralized intermediaries, potentially making them less susceptible to regulatory actions similar to the one taken against BUSD.
The regulatory crackdown on Paxos and BUSD is a significant development that raises questions about the future of stablecoins and the broader crypto industry. It remains unclear how other regulators will respond to similar stablecoin arrangements and whether further enforcement actions are imminent. The market will continue to monitor the situation closely as the ramifications of this regulatory action unfold.
