US Regulatory Curbs Spark $900 Million Slump in Binance-Branded Stablecoin BUSD

Sidhartha Shukla, Bloomberg News

(Bloomberg) -- A US crackdown on a Binance-branded stablecoin has sparked $1.4 billion in redemptions of the token in a little over two days, according to the coin’s issuer Paxos Trust Co., in the latest shakeup in a tumultuous period for the cryptocurrency sector.

The circulation of BUSD, the third-largest stablecoin, was $14.6 billion as of Wednesday morning in New York, Paxos said. It had been about $16.1 billion as of Monday, according to CoinGecko data. Many investors are opting for No. 1-ranked Tether, known as USDT, which now accounts for just over half of the $138 billion stablecoin market.

Stablecoins are intended to hold a set value, for example $1. They come in a variety of forms and some are underpinned by reserves like cash and bonds. Investors often park funds in stablecoins as they move between crypto trades.

Binance is the largest crypto exchange and BUSD — also known as Binance USD — was minted by a partner, Paxos. A New York regulator told Paxos to halt new issuance over unresolved issues tied to Paxos’s oversight of its relationship with Binance. The Securities & Exchange Commission separately is considering taking action alleging that BUSD is an unregistered security.

“We have not seen extreme redemption levels and Paxos will continue to support BUSD in circulation for at least one year,” Paxos said in a statement Wednesday.

That backdrop has led to uncertainty about the US stance on stablecoins, including USD Coin or USDC, whose issuer Circle Internet Financial Ltd. is regulated as a licensed money transmitter under U.S. state law.

“The lack of clarity on the regulatory treatment of stablecoins in the U.S. could have significant impacts on the industry,” Cristiano Ventricelli, a Moody’s assistant vice president, said in a statement. “Capital may migrate to stablecoins issued in jurisdictions with more tailored regulatory frameworks.”

Tether is located outside the US and receiving inflows despite scrutiny over the transparency of its reserves. New York-based Paxos has said existing BUSD coins remain fully supported and can be redeemed through at least February 2024.

(Updates redemption figures. A previous version of the story was corrected to fix an errant number in the first paragraph.)