Former Paxos Exec: Regulators Failed to Address Crypto Collapses, Now They’re Going After 'On-Ramps'

The demise of several large crypto-related companies is forcing the hand of regulators who are looking to find ways to block crypto from mainstream financial markets, said Jesse Austin Campbell, former head of portfolio management at Paxos.

“Regulators in general failed to adequately address Celsius [Network], Terra and FTX, and are now going after any of the on-ramps they can to try to reduce access to the system,” Campbell, now an adjunct professor at Columbia University's Business School, said on CoinDesk TV’s “First Mover” on Wednesday.

According to Campbell, similar approaches are being taken by federal banking regulators making policies “to restrict access for crypto companies to the banking system.”

Paxos is one of those crypto companies facing regulatory scrutiny. Earlier this week, the stablecoin issuer received a Wells notice from the U.S. Securities and Exchange Commission (SEC) warning of regulatory action for the company's alleged sale of an unregistered security, in this case the Binance USD (BUSD) stablecoin. The regulator claims the platform’s stablecoin is not backed one-to-one with the U.S. dollar. Paxos has claimed the opposite, and said it will litigate if necessary.

However, Paxos did cease minting the BUSD token after being told by the New York Department of Financial Services there are unresolved issues related to Paxos’ oversight of its relationship with the Binance exchange. Binance does not have a direct involvement in the BUSD stablecoin outside of its name but Paxos said it was ending its relationship with the exchange. Paxos is licensed in New York.

“The NYDFS is the regulator and they’re the ones with the authority directly to tell Paxos what they’re allowed to do,” Campbell said. “The SEC can make a play, alleging [BUSD is] a security, but just like Ripple, that’s probably going to court. With the NYDFS there’s no question.”

Paxos had upwards of $16 billion in BUSD tokens before it began burning them following its Monday announcement that it would stop the minting.

Campbell, who was at Paxos between March and December 2022, said the crackdown on the company shows that “regardless of intent,” what regulators are showing the public is that “probably, the greatest mistake you could have made is to be an onshore, regulated company in the crypto space.”

“You are the ones constantly getting punished, fined and harassed even though you’re not the ones who lost user money,” he said of licensed companies like Paxos. “A lot of people offshore have done things that are significantly more objectionable and are not facing the same degree of scrutiny.”

In a later interview with CoinDesk Campbell said while unintentional, "I think the problem is that it is the world [federal regulators] have created, and it's important to surface that point." While U.S.-licensed companies are getting "smacked around," offshore companies like Tether, the issuer of the USDT stablecoin, are "just growing and growing and growing."

As Campbell noted in an op-ed for CoinDesk, stablecoins are “very simple instruments,” and are not new.

“It’s the promise of, ‘you’re going to give somebody money and later on, they will give you back $1.’ It’s something that already exists,” Campbell said on CoinDesk TV. He said that what is “confounding to me is the extreme sort of noise and confusion around [stablecoins] when really they work very similarly to things we're already familiar with.”

Read more: How Crypto Advocacy Must Change Post-FTX Collapse / Opinion