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The source of this article wishes to remain anonymous. It is one of the many sources to which this reporter has spoken recently. All of them are relatively large dealers who have used the Paxos standard. They are a group of five traders. They trade in millions of dollars a week through multiple exchanges including Binance and Huobi. These are mentioned in this article but are not covered.
Let's start with some definitions. Paxos Standard is defined as "stablecoin". Your tokens can be redeemed on a 1: 1 basis for US dollars. Refunds are transferred via a traditional bank transfer. The minimum is $ 100, on a pre-established schedule that Paxos defines in the terms and conditions of the user. To his credit, this minimum is very low compared to Tether and others.
The "exchanges" are mostly both Binance and Huobi, which are the most used platforms by the traders of this article. It is important to note that none of these exchanges was wrong in the events described here. They allowed withdrawals in their usual policies.
Paxos withholds the funds a week or more
At the time of writing this document, Paxos Standard had withheld funds from our source since December 23rd. This is the second time that they give him a significant nuisance. Their customer service agents gave multiple reasons:
- They had to know if he was the owner of Ethereum.
- They wondered if the use of multiple addresses controlled by Binance was legitimate.
- They questioned withdrawals and PAX deposits on Binance.
They asked to know the exact nature of the counterparties and owners of the PAX redeemed.
In a message, they accused the user of "misrepresenting" the origin of tokens. This trader is one of the four whose accounts have been closed following redemption.
Later, this week's support messages require you to know "more about your trading strategy". CCN has contacted the NYDFS to see if this is also a legally valid question to ask.
All the people discussed in this article have legitimate Paxos Standard account with it Bit. Until their accounts have been closed due to substantial redemptions, ie. The account of a remaining person has not been closed, but has $ 1.1 million in limbo.
In any case, a similar model: traders make deposits in Binance or Huobi and do what the traders do. Acquire a payment through the preferred platform – Paxos Standard. They are then involved in a vortex of questions, many of which are only tangentially important for the purpose of the stablecoin issuer.
What are you really asking, Paxos?
The Paxos team claims not to protect market capitalization or to act in a punitive manner as regards PAX redemption. Yet, the invasive questions raise the question: what's the problem?
CCN has spoken with other sources that have encountered similar problems with Paxos. Paxos did not oppose the redemption of tokens in these other cases. They asked that the Redeemer "wait about a week" to withdraw. They said it would be "bad for their business" to do it immediately. We interpret this to indicate that they did not want to take the loss of market capitalization. Their marketing message drives the narrative very much that their market capitalization is nothing but growing.
We decided to take a look at the volume of the week of a specific case. One of the biggest cases discussed in the search for this article. For a week, a repayment of approximately $ 2.6 million was made. Subsequently Paxos sent the redemption and closed the account permanently. The week in question was that of December 6th.
That week saw a reduction in the Paxos Market Cap of nearly $ 20 million a day before December 6. On December 5, it was as high as 178 million but on December 6 it had been reduced to 161 million. At the time of writing, there are about 147 million.
We did a Q & A with the person who best represents the group. He is an American trader who works with counterparts in China and elsewhere.
When did you start trading with PAX?
We started trading PAX at the beginning of November.
Why did you use PAX instead of other stablecoin?
Paxos was giving people a discount / discount to buy PAX, so it was traded at a discount on Binance. So we bought a discount and redeemed at full price for arbitrage.
How much money have they kept and for how long?
In one case, 2.5 million were blocked for 1 week and our account was closed. In a current case, almost 1.1 million are withheld.
Why do you think PAX has to worry about your account status in places like Binance – is it really one of their activities regardless of whether multiple accounts are used?
I think they just try to find some unrelated compliance reason to stop us from redeeming PAX. They asked many questions about the accounts of Huobi and Binance, even asked for information from our counterparts that are highly confidential. We will never disclose the information of the counterparts to anyone without their consent. They asked a lot of questions and then closed our accounts. This is how they prevent people from redeeming PAX and how they do business.
We have contacted the Paxos standard to comment on this article and why they will suspend the reimbursement of PAX token customers for dollar transfers. Before this reporter tried to call them:
This is what said Dorothy Chang, VP of Marketing and Communications of Paxos in response to the inquiry by e-mail:
As a policy, we are proud to offer all customers valid daily reimbursements with zero commissions or limits (neither minimum nor maximum). Since launching less than 4 months ago, we have honored over $ 178 million of 1: 1 PAX refunds for USD and we aim to continue to be the most reliable and proven encryption method. In fact, we have redeemed more stablecoin in USD than all the others that have launched this year (TUSD, GUSD, USDC, etc.). We are known to be the most reliable, fastest and cheapest source of payment.
Yes, we have closed some accounts, just for good reasons. It's all for AML / KYC compliance. Even if we do not comment on the status of individual account activities, we can talk about the patterns we have seen lately.
We are obliged to understand the source of the funds that come to Paxos for redemption. 100% of customers who resolve compliance can redeem within a day. This applies to almost all customers.
But when customer activity appears suspicious or the source of the funds is not clear, we conduct advanced due diligence. This may take a few days, depending on how responsive our customers are to our information requests. In some cases, the client's business did not correspond to what they claimed. For example, we have identified customers who incorrectly submitted to Paxos (or an exchange they are redeeming) the ownership of their PAX. Some even admitted openly to do so. In these cases, consistent with our regulatory obligations, we have processed repayments but have undertaken other appropriate actions, including closing the accounts.
As a regulated financial institution and trust company, Paxos maintains strict compliance standards to ensure that our customers' assets are kept under the highest possible level of protection. Suspicious activity is never tolerated to guarantee the integrity of customer funds and our operations. We are proud to maintain high standards, that this sector must continue to bring benefits to those who act in good faith.
For many customers, Paxos was a great way to use the dollar in blockchain markets. Provides an easy ramp from traditional bank accounts to encryption platforms. Yet for others it was a nightmare, as reported here. We will not directly say that their restraint tactics are part of a program to preserve their market capitalization numbers. However, we can understand why interested traders could believe it.
It is important to note that all the people discussed in this article eventually honored their redemption except the one whose request is still pending. The downside was that they lost their accounts with which to do it. The fact that Paxos / itBit was able to eventually lead the transaction raises the question: has there ever been any real cause for concern? This is why traders believe their funds have been held for commercial reasons.
We encourage our readers to do their own research in choosing a stablecoin. CCN provides regular coverage of the various options.
Images from Shutterstock and anonymous sources.
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