- Binance USD experiences a drastic drop of $2.5 billion in market cap in a few days.
- The withdrawals are a result of the ongoing regulatory investigations on the issuer, Paxos Trust Company.
- Paxos has ceased minting BUSD and cut ties with Binance.
Changpeng Zhao, CEO of Binance, revealed that Binance USD’s (BUSD) market cap had been reduced by close to $2.5 billion this week courtesy of the ongoing scrutiny of the stablecoin by U.S. regulators. Zhao tweeted
“BUSD market cap dropped -$2.45B (from 16.1B to 13.7B as of now), and most of it has moved to USDT, “adding that the “Landscape is shifting.”
According to his tweet, the market cap of USDT, also known as Tether, has increased by $2.37 billion to $70.1 billion from the previous $67.8 billion. On the other hand, the market cap of USD Coin (USDC) has decreased by $739 million to $41.5 billion from $42.3 billion. Zhao also stressed that Binance did not issue the BUSD stablecoin.
The actual issuers of the BUSD stablecoin, Paxos Trust Company, received a directive from the New York Department of Financial Services to cease minting the tokens. The firm also received a Wells Notice from the U.S. Securities and Exchange Commission (SEC) stating that the firm ought to have registered BUSD as a security and that the SEC was considering legal action.
Despite Binance distancing itself from the stablecoin and reiterating that it was not the issuer of BUSD, the exchange’s native coin, Binance Coin, still fell on the news.
Paxos stops minting BUSD
The ongoing investigations may have stemmed from a regulatory complaint filed in 2022 by rival Circle, issuers of the largest stablecoin USDC, alleging that Binance was mismanaging its reserves. The complaint filed with the New York State Department of Financial Services (NYDFS) accused Binance of not holding enough resources for all the tokens it was issuing. The complaint was based on a discovery made after Circle analyzed Blockchain Data.
The crackdown led to Paxos, which shares a regulator with Circle, being ordered by the regulator to terminate its relationship and collaboration with Binance. The NYDFS issued a statement regarding the matter where they cited “several unresolved issues related to Paxos’ oversight of its relationship with Binance regarding Paxos-issued BUSD.”
In response, Paxos published a statement announcing that, by the regulator’s ruling, it will end its relationship with Binance for the branded stablecoin BUSD. As a result, Paxos will stop minting new BUSD from the 21st of February.
Circle’s report to the NYDFS could have been influenced by Binance policy to automatically convert all USDC and other stablecoin deposits on its exchange into BUSD last September. This led to a decrease in Circle’s share of the stablecoin market, the largest stablecoin followed by Tether, then BUSD.
Despite that, Binance has been in the spotlight recently due to concerns over its reserves. Early this year, it was found that the exchange was holding accounts for over half of its B-tokens with client assets, which the business acknowledged as a mistake.
In response to the ceased partnership with Paxos, Binance’s CEO emphasized that Paxos fully manages and owns the stablecoin. He also forewarned that the market should expect BUSD’s cap to reduce
