EDX Markets, a nascent crypto exchange supported by Charles Schwab, Fidelity, and Citadel Securities, has reportedly ended its intended association with Paxos and is nearing an agreement with Anchorage Digital, according to Bloomberg.

Previously, EDX Markets had announced a partnership with Paxos in October of last year. The New York-based blockchain firm, known for issuing Binance stablecoin BUSD, would have served as the custodian for EDX’s clients’ crypto assets while also providing direct EDX access to Paxos customers. This plan has now been abandoned.

Anchorage Digital, based in San Francisco, is a US crypto custodian that possesses a bank charter from the Office of the Comptroller (OCC). Despite criticism from the OCC in 2021 regarding the absence of key anti-money laundering controls, the company agreed to make necessary corrections. Anchorage, valued at over $3 billion following a funding round in 2021, reduced its staff by approximately 20% in March.

EDX’s CEO, Jamil Nazarali, stated last week that the company is cooperating with a third-party custodian, but declined to name the new partner. Both EDX Markets and Anchorage Digital chose not to comment on the matter.

EDX’s website currently lists Anchorage as a partner, though Paxos is notably absent. A Paxos spokesperson commented, “EDX shifted to focus on a non-custodial offering at launch. We are very excited about what EDX is building, and we hope to support EDX customers with our regulated custody when banks and brokers onboard to the platform.”

The choice of a custodian for EDX is essential due to the exchange’s non-custodial model, which contrasts with existing crypto platforms such as Coinbase and Binance Holdings Ltd. by not holding clients’ digital assets during transactions.

Paxos’ regulatory issues

Paxos has faced regulatory scrutiny from several directions in the last year. New York State ordered Paxos to halt issuing its Binance-branded stablecoin, BUSD, in February. Furthermore, Paxos received a Wells notice from the US Securities and Exchange Commission in February, signaling that the regulator was investigating the firm and considering litigation.

Paxos has disputed these charges and indicated its willingness to defend itself in court. Meanwhile, an SEC official alleged that Binance, a leading cryptocurrency exchange, sent nearly $20 billion in commingled funds to Paxos in 2021 through Merit Peak Ltd., a trading firm. To date, the SEC has not filed charges.