- Binance announced it will phase out support for its stablecoin, BUSD, with a complete transition by February 2024.
- The decision follows regulatory pressures, including a cease order from the New York Department of Financial Services to Paxos, the issuer of BUSD.
- Binance is promoting a new stablecoin, First Digital USD (FDUSD), offering a 1:1 exchange rate and commission-free trading to encourage users to switch.
Cryptocurrency exchange Binance, one of the largest players in the field, recently made a startling announcement that has far-reaching implications. It declared its intention to “gradually” discontinue support for Binance USD (BUSD), a stablecoin that has been crucial in various trading and investment operations. This revelation comes at a time when stablecoins are under close scrutiny from regulators, adding another layer of complexity to the crypto landscape.
According to the exchange, users must convert their holdings in BUSD into other digital assets by February 2024. Starting from September 7, 2023, cross-margin BUSD borrowings will be suspended. Moreover, from October 19, 2023, the platform will no longer accept new BUSD collateral. Binance has also ceased BUSD withdrawals across multiple blockchain networks like BNB Chain, Avalanche, Polygon, and Tron, effective September 7, 2023.
While the announcement of the phase-out wasn’t entirely unexpected, the pace at which the timelines have been pushed forward seems to have caught many by surprise. In the past, Binance CEO Changpeng Zhao had alluded to a “slow wind down” of BUSD, although the exact timing was unclear. Now, that lack of clarity has been replaced by decisive timelines, impacting those holding or trading BUSD.
Regulatory Pressures and Legal Tangles
The underlying reason for the BUSD phase-out can be traced back to regulatory factors and the involvement of the stablecoin issuer, Paxos. Paxos was ordered by the New York Department of Financial Services (NYDFS) to stop minting BUSD earlier this year. This regulatory action was followed by the Commodity and Futures Trading Commission (CFTC) suing Binance on allegations of offering unregistered crypto derivatives products.
Moreover, fresh legal issues have surfaced with the U.S. Securities and Exchange Commission (SEC) submitting a sealed motion related to Binance. This indicates that Binance’s legal troubles are far from over and could potentially be a contributing factor in the decision to phase out BUSD.
Transition to Other Stablecoins: FDUSD Spotlighted
As Binance winds down support for BUSD, it is simultaneously promoting another stablecoin, First Digital USD (FDUSD). This coin was launched in June by the First Digital Group based in Hong Kong and made its debut on Binance in late July. Binance is offering incentives for users to transition their BUSD holdings to FDUSD. A 1:1 BUSD/FDUSD exchange rate and commission-free trading between these stablecoins are some of the incentives being offered to accelerate this shift.
Paxos, too, has confirmed that all existing BUSD tokens will remain fully backed and redeemable until at least February 2024. Users also have the option to convert their BUSD to the Pax Dollar (USDP), another stablecoin from Paxos, reinforcing the fact that they have multiple options to choose from. The cessation of BUSD services marks a significant shift in the crypto arena, underpinned by regulatory complexities and the ongoing quest for stability within the digital asset ecosystem.