Binance Lists Paxos (PAX) Stablecoin as Critics Flag Back Door for Law Enforcement

The PAX digital asset, which is now listed on Binance, has raised concerns of a backdoor allowing for the freeze of tokens.

Paxos (PAX) is the latest stablecoin making connections in the crypto economy, with Binance almost immediately adding the asset to its portfolio. The exchange, which has the largest Tether (USDT) wallet and also a TrueUSD (TUSD) market, went ahead with the listing despite concerns that PAX is a centrally controlled token, which would allow law enforcement to freeze funds.

“Binance has opened deposits for Paxos Standard Token (PAX). Trading for PAX/BNB and PAX/BTC trading pairs will open at a later date and we will make a separate announcement prior to this,” the exchange said in a statement.

There is yet no known pairing between stablecoins. Theoretically, sharing USDT, TUSD, and other stablecoins offers traders a chance to move assets between exchanges. Binance founder Changpeng Zhao believes that listing stablecoins will increase connectivity in the crypto sector, stating that those assets act like “bridges”:

https://twitter.com/cz_binance/status/1039548556644773891

There has also been talk of Binance listing Gemini Dollar (GUSD), in effect connecting an important US-based exchange with one of the most active markets for Bitcoin (BTC) and altcoins.

However, PAX has triggered unease due to the potential for law enforcement or the token issuer to freeze assets. This is a token based on the Ethereum network, and like many others, it can be centrally controlled. According to a tweet, the option to freeze or burn balances is also open to law enforcement:

https://twitter.com/backus/status/1042526197844926464

Tether has locked tokens during an attempted theft, and Ethereum-based assets like Bankor and KickCoin have been centrally controlled by the teams. This also means that PAX balances are not immutable.

PAX is a dollar-backed stablecoin approved by the authorities of New York State. The company behind it, Paxos, has been licensed by the US Securities and Exchange Commission to handle user funds in fiat for the backing of the asset. Additionally, owning PAX means complying with bank regulations on anti-money laundering, identity disclosure, and protection against terrorist financing.

At the time of writing, the share of USDT trading on the entire crypto market was a bit above 20% and accounted for more than 46% of BTC trades.