Binance is going through a new turbulent zone. The cryptocurrency giant has just been deprived of its stablecoin, BUSD, following the sudden decision of US regulators. The announced death of the digital currency is likely to cause violent tremors throughout the ecosystem…
While the ecosystem is still scarred by the collapse of FTX, the United States Securities and Exchange Commission (SEC) has embarked on a real crusade against the cryptocurrency giants. The American financial regulator has notably attacked one of the main stablecoins in the industry, the BUSD.
As a reminder, a stablecoin is a cryptocurrency backed by fiat currency, usually the dollar. The price of digital currencies backed by a fiat currency is stable. To stabilize the price of the token, each stablecoin is guaranteed by a reserve of money, made up of cash or other goods, such as precious metals for example.
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A new stablecoin bites the dust
The constable estimated that BUSD, Binance’s stablecoin, violates United States law. The cryptocurrency has not been registered as a financial security, which represents a “violation of investor protection laws”. At the request of the SEC, the New York Department of Financial Services (NYDFS) therefore ordered Paxos, the New York company that issues BUSD on behalf of Binance, to terminate the stablecoin. The organization points the finger “several unresolved issues related to Paxos monitoring its relationship with Binance through BUSD”.
#BUSD. A-thread. 1/8
In summary, BUSD is issued and redeemed by Paxos. And funds are #SAFU!
— CZ ? Binance (@cz_binance) February 13, 2023
Forced to obey regulators, Paxos announced the end of BUSD issuance from February 21, 2023. It will no longer be possible to issue new tokens after this date. For Changpeng Zhao, CEO and founder of Binance, this ban marks the death of the digital currency. It expects users are gradually moving away from the stablecoin.
“Therefore, the market capitalization of BUSD will only decrease over time”admits Changpeng Zhao on Twitter.
Nevertheless, the BUSD already issued remain guaranteed by the reserves of Paxos, at least until February 2024. Paxos thus gives investors time to convert their stake. At this point, there is no indication that BUSD will suffer the same fate as UST, which abruptly lost all its value in May 2022. One BUSD is still worth one dollar. The stablecoin remains pegged to the value of the dollar, and that is not expected to change.
Although it has obeyed regulators, Paxos says it is adamantly opposed to SEC staff. According to the New York firm, renowned for its solid regulation, “BUSD is not a security under federal securities laws”. Paxos claims to be willing to assert its rights in court. The case is far from over.
As Changpeng Zhao points out, Binance is just a collateral victim of a dispute between the SEC and Paxos. Nevertheless, it can be estimated that the tightening of the screws decreed by the regulator aims above all to weaken the entities, especially foreign ones, which offer stablecoins… in view of the emergence of a hypothetical digital dollar?
New “stress test” for the Binance titan
Unsurprisingly, the announcement caused major earthquakes in the cryptocurrency market. Within a day, $2.7 billion BUSD left the platform, Nansen experts reveal. Traumatized by the repeated catastrophes of the past year, investors no longer take the slightest risk.
This is already the second wave of withdrawals hitting Binance in the space of a few months. In December, the exchange’s Proof of Reserve, accompanied by a sham audit, had already caused the abandonment of some users. Despite the pressure, Binance once again managed to honor all withdrawals without encountering any difficulties. According to a Binance spokesperson, interviewed by CoinTelegraph, more than a billion dollars were withdrawn from the exchange in twelve hours. The influx of requests has “was handled with ease”.
BNB price, the utility cryptocurrency of Binance, suddenly unscrewed after the announcement of the death of BUSD. The digital currency, at the heart of the Binance ecosystem, briefly dipped below the $285 threshold, before stabilizing around $295. Actions taken by regulators are pushing investors away from tokens related to Binance, at least in the short term.
BUSD, essential for Binance?
BUSD is another essential part of the ecosystem developed by Binance. The stablecoin allows you to make payments, through the Binance Card or Binance Pay, to enjoy high returns, or to make trading on the platform. In addition, the Changpeng Zhao company owns a large part of its assets in the form of BUSD. According to the Proof of Reserve published in December, Binance retains 15% of its BUSD holdings, or 21 billion of the $71 billion stored by theexchange.
BUSD is also the third largest cryptocurrency in Binance’s reserves, behind BNB and USDT. Finally, it should be noted that 90% of the BUSD on the market are stored on the Binance platform. Note that the end of BUSD does not only affect Binance and its customers. THE token East the third most popular stablecoin of the entire ecosystem, with a capitalization of more than 16 billion dollars. The death of BUSD should mechanically benefit the other two main stablecoins, namely Tether’s USDT and Circle’s USDC.
Faced with the storm caused by the SEC, Changpeng Zhao wanted to be reassuring. The company planned immediate adjustments following the defection of Paxos. First, Binance will stop promoting BUSD for trading. trading. At the same time, the firm is exploring the possibility of launching a stablecoin that is not based on the US dollarpresumably to escape the onslaught of regulators.
“If BUSD is deemed a security by the courts, it will have significant implications for how the cryptocurrency industry will develop”regrets the boss of Binance.
The SEC’s decision is part ofa vast crusade against the cryptocurrency giants. A few days earlier, the stock market policeman also ordered Kraken, one of the veterans of the industry, to cease part of its activities on American soil. The regulator wants to comb through all the activities of theexchange to track irregularities. These offensives risk destabilizing the crypto ecosystem, still weakened for a trying year 2022…
