Binance’s Stablecoin BUSD in Turmoil

BUSD, which is the native stablecoin belonging to the world’s leading crypto derivative firm, Binance, is in turmoil. The exchange is under great pressure from regulatory authorities in the United States.

The situation is constantly getting worse for the cryptocurrency exchange as regulatory authorities are going after its services.

Over the course of six days (i.e. less than a week), BUSD’s market supply has subsequently reduced by more than 17.77%.

Within the previous 30 days only, BUSD’s market supply has shrunk by at least 19.2%. The supply is hence declining fast and at an alarming level with which Binance is concerned a great deal.

The major reduction came when on 13th February 2023, Paxos sent a loud and clear message that it would no longer be minting BUSD.

This was a major low-blow to the cryptocurrency exchange as its native stablecoin is not going accepted by Paxos.

Paxos Brought Heavy Toll upon BUSD

Paxos is the primary entity that is heavily involved in redeeming, minting, controlling, and issuing a supply of Binance’s native stablecoin.

Paxos’ announcement of not backing BUSD subsequently gave rise to ‘massive redemptions’ of BUSD. For instance, in a couple of hours after Paxos’s announcement, Binance saw the redemption of BUSD worth approximately $290 Million.

Prior to the announcement, BUSD’s total market supply was exceeding over $16 Billion. However, as of now, the supply has been further decreased by approximately 18% in total.

If things keep on getting worse for the stablecoin, its valuation may continue declining in the future. This may also result in the asset losing its peg that it has with the dollar.

This means that over $2.8 billion units of BUSD coins have vanished from the market supply.

As indicated by Nansen, Paxos Treasury was the most instrumental treasury pertaining to BUSD coins. Paxos was single-handedly responsible for providing huge numbers of BUSD directly to burn addresses.

Nansen’s data also revealed that Binance’s total supply of BUSD, which hasn’t yet landed in the market, is comprised of over 11 billion stablecoins.

Noticeable Shift in the BUSD’s pairing With Tether

The issuer of BUSD commands a majority of stablecoin’s trade volume and supply. Although BUSD is being paired with a wide range of cryptocurrencies, however, its pairing with Tether is the globally popular pair.

The stablecoin also witnessed a promising shift of pairing when BUSD’s pairing with the Turkish Lira went as high as 6% on Sunday.

As compared to its arch-rival USDC, the decline in BUSD’s trade volume within the past 6 and 30 days was significant.

Within this period BUSD saw its supply reduced by at least 19% while USDC’s supply was reduced fractionally by 2.9%.

Troubles Growing For Binance

For the time being, the reasons why Paxos decided not to back BUSD anymore are not clear.

However, Binance has been the subject matter of various ongoing concerns which include amongst others issues of regulation and compliance.

A few days ago, a key official at Binance revealed that Binance may be taking up its issues with the US regulators.

Binance’s official also indicated the firm’s intention of paying hefty fines in the near future for ending regulatory disputes raised by multiple regulators.

However, it is the assumption of Binance that it can settle disputes with regulators without resorting to legal proceedings.

On the contrary, the fate of Binance and the issues which the firm is facing, are in the hands of regulators.

Binance’s relationship with the US regulators is not as ‘cordial’ as Binance expects it to be.

For instance, the Department of Justice of the US has been investigating the affairs of Binance over certain accusations.

The firm had been accused of money laundering, avoiding regulatory compliance, and other serious allegations.

The reduction in BUSD’s supply may perhaps be a result of Binance’s ongoing issues and potential litigations with the investigators and regulators.