Nearly $2.5 bn eroded in Binance's stablecoin over regulatory scrutiny. Where is money moving?2 min read 17 Feb 2023, 03:45 PM IST
The New York Department of Financial Services ordered Paxos Trust Company, which is the producer of Binance USD, to cease minting BUSD tokens over several unresolved issues related to Paxos’ oversight of its relationship with Binance.
Paxos has announced to end ties with Binance.
Given the recent development around Binance USD, nearly $2.5 billion of market cap has been eroded in the stablecoin. Changpeng Zhao, the co-founder and CEO of the world's largest cryptocurrency exchange in terms of trading volume, on Friday, said, money has moved from BUSD to Tether. Zhao also reiterated that Binance USD is not issued by Binance.
Why money is moving out of Binance USD stablecoin?
The reason behind the drop in market cap of Binance's stablecoin would be regulatory scrutiny.
Earlier this week, on Monday, the New York Department of Financial Services ordered Paxos Trust Company, which is the producer of Binance USD, to cease minting BUSD tokens over several unresolved issues related to Paxos’ oversight of its relationship with Binance.
DFS said that it is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols.
According to DFS, the department authorized Paxos to issue BUSD on the Ethereum blockchain. While the department did not authorize Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos.
All stablecoins issued by DFS-regulated entities are required to be fully backed 1:1 by cash or cash equivalents, as per the DFS requirement.
Later, on February 13, Paxos announced that it will end its relationship with Binance for the branded stablecoin BUSD.
On February 14th, on the occasion of Valentine's Day, Zhao answered questions from users which centered around stablecoins and BUSD specifically.
In a blog by Binance, Zhao said, BUSD is not issued by Binance. It carries the Binance brand, but it’s not something we created or operate. Binance is a platform designed to help people access a wide range of digital assets, including stablecoins.
Zhao added, "We will continue to work with multiple stablecoin issuers."
On whether BUSD is safe, Zhao said, if you look at the NYDFS notice posted on their website, they specifically instruct Paxos to ensure a 1:1 pegging and customers’ ability to redeem in an orderly fashion."
Hence, the billionaire said, "so even though the minting of new BUSD is stopped, the existing circulating supply is safe," adding, "there shouldn't be any loss for any users."
At CoinMarketCap, Binance USD (BUSD) is trading below the $1 peg and broadly flat. At the time of writing, its market cap is around $13.71 billion. While USD Coin (USDC) is also trading flat at its peg with a market cap of $41.67 billion.
Similar was the case of Tether which held on to its peg with a market cap of $70.17 billion.
However, Binance's token BNB is down nearly 4% and below $310 levels. Its market cap is around $48.92 billion.
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