Binance weakened again

After Signature Bank, Binance loses an important new partner: Paxos. In question, its stablecoin BUSD (Binance-USD) which disturbs the SEC and NYDFS.


A shadow has been hanging over BUSD since early January, when Binance acknowledged that its stablecoin had no “not always 100% covered”.

Since then, the Securities and Exchange Commission (SEC) and the New York Department of Financial Services (NYDFS) seem to have investigated. As a result, the NYDFS has just banned any additional issuance of BUSD.

This stablecoin is managed by the company Paxos, in tandem with Binance. With 16 billion units in circulation, it ranks third behind its competitors USDC (41 billion) and Tether (70 billion).

Stablecoins are mainly used to sell bitcoins without this constituting a taxable event. Traders also appreciate the absence of the usual dollar conversion fees and delays.

As a reminder, a stablecoin is supposed to maintain a perfect 1-1 parity with the dollar. This fixed parity requires keeping a dollar in reserve for each BUSD issued.

But why is the NYDFS attacking the BUSB since Paxos nevertheless claims on its site that its stablecoin is entirely guaranteed by dollars as well as US Treasury bonds?

There are two BUSD!

Paxos vouches for its BUSD, but not those issued by the CZ exchange. Binance indeed creates Binance-Peg BUSD which are often lumped together with Paxos BUSD.

Except that it is not the same stablecoin. Paxos clarifies moreover the difference on his site:

“Binance, our trading partner for BUSD, issues its own tokens which are called Binance-Peg BUSD. Note that the Binance-Peg BUSD is strictly a Binance product. It is not issued by Paxos nor regulated by the NYDFS. […] There are benefits and risks associated with every product, which is why you need to understand the design, nuances, and differences of any asset you acquire. »

Indeed, this nuance is that the Binance-Peg BUSD have no “not always 100% covered”

Binance explain also this difference (only in English…) on its site:

“In addition to Paxos which issues BUSD on the Ethereum blockchain, Binance offers a “wrapped” BUSD, called Binance-Peg BUSD.

BUSD is issued on Ethereum, which limits its use outside of the Ethereum ecosystem. In order to extend the usefulness of BUSD to other blockchains, Binance offers a “wrapped” version of the stablecoin called Binance-Peg BUSD. It is designed to maintain a 1-1 parity with the original BUSD stablecoin.

“Wrapping” is a jargon that is used when creating versions of the original asset that are transportable on other blockchains with the aim of increasing interoperability and interconnection between digital assets. Normally, the escrow of the original asset guarantees the value of the “wrapped” tokens, which is the case with Binance-Peg BUSD. »

” Normally “ and especially, ” not always “

The secrets of Binance

There are approximately 5 billion Binance-Peg BUSD. Or, should we say, “wrapped” stablecoins having no “not always 100% covered”. Bloomberg reports that the hole in the racket has sometimes reached $1 billion…

DataFinnovation has indeed discovered that the balance of real BUSD was regularly lower than the quantity of Binance-peg BUSD circulating. Which means that somehow someone was creating BUSD ex nihilo:

Binance-peg BUSD supply vs real BUSD supply
Source : Patrick Tan

In short, in any case, if Paxos no longer has the right to issue new BUSD, it is impossible to create more Binance-Peg BUSD. Ultimately, this means that traders of certain exotic shitcoins will no longer be able to unwind their positions without having to declare it to taxes.

Unless… Unless traders decide to unwind their positions by taking refuge in BNB, which is Binance’s native token (the equivalent of FTT for FTX). Binance’s CEO seems to approve of this choice based on his comments on some tweet.
But wouldn’t that be taking a big risk? Indeed, the BNB is not a stablecoin, far from it…

A total of 200 million BNB tokens were created, half of which were sold during the 2017 ICO at the price of $0.10 each! The other half, created ex nihilo, was offered to the Changpeng Zhao team (80 million) and a few “business angels” (20 million)!

It is true that the CZ exchange “ burns of BNB every quarter and promises to do so until there are only 100 million left. You still have to trust…

Also, how many Business Angels still hold millions of BNB obtained at $0.10? What will be the impact on the investment of the latest arrivals in the event of a massive sale of the BNB of these early investors?

All this to say that BNB has nothing to do with a 100% hedged stablecoin. On good terms…

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