Investor Panic Causes Binance USD (BUSD), Redemptions to Increase to $360M

Paxos, issuer of Binance stablecoin BUSD, has announced it will cease minting the dollar-pegged asset starting February 21.

This was in response to a threat of legal action by the SEC. The NYDFS regulated company was accused of selling unregistered securities even though BUSD, a stablecoin, was being sold.

In a Statement The company stated:

“Paxos strongly disagrees with the SEC staff, because BUSD isn’t a security according to the federal securities laws.”

In the aftermath, panic set in and redemptions of BUSD have skyrocketed in the last few hours.

Binance and the Crosshairs of BUSD

Paxos claimed that its BUSD reserves were fully backed 1:1 to US Dollar, but that hasn’t stopped the exodus of stablecoin. Analysts in the industry have referred to it as a clandestine attack against Binance.

In just a few hours, the BUSD run caused a 2.2% drop in supply. There was $16.15 trillion worth of BUSD in circulation before the announcement. However, this has fallen to $15.79 over the past 12 hour. This means that approximately $360 million has been spent on redemptions.

The Binance USD price chart. Source: CoinGecko
The Binance USD price chart. Source: CoinGecko

Investors reacting to the news have led to Binance outflows increasing. Nansen data suggests that the platform has seen outflows of more than $830million in the last 24 hours. The largest daily net outflows to Binance from exchanges since November was February 13,

Binance reserves are being tested as BUSD is the second-largest reserve asset after Tether. The stablecoin holds 22% of the total treasury, with $13.4 billion USD in reserve.

BUSD also temporarily lost its peg when redemption volume increased. However, CEO Changpeng Zhao stated that the FUD was temporary.

BNB Price Reaction

BNB, the native token of the exchange, also took a hit today. According to CoinGecko, BNB traded at $292 per day, down 5% from the previous day. BNB was trading at $315 before the Paxos announcement.

As crypto markets slump again, the exchange asset has lost 10% in the last week. BNB is also down 57.4% compared to its May 2021 record high of $686. However, the price drop isn’t as severe as that for Ethereum or Bitcoin, despite regulatory crackdowns and FUD.

By David Warsh

David Warsh is a leading expert in the field of cryptocurrency and blockchain technology. With over a decade of experience in the industry, he has a deep understanding of the intricacies of digital currencies and the potential they hold for revolutionizing various industries.