The world’s largest crypto exchange, Binance, is in hot water after New York regulators ordered that they cease and desist all stablecoin production. Paxos, the provider of the Binance stablecoin as of this week, has stopped the creation of one of Binance’s most successful financial products.
Binance stablecoin is no more… or is it?
Well, the situation is more complicated than appears, as it often is. Let’s start off with who the issuer of the Binance stablecoin is, and then we can address what will actually happen to Binance in the short and long term.
US Officials Tighten Crypto Trade Rules
Firstly, Paxos, the stablecoin company behind the token’s formation, announced on 13 February it would terminate its connection with the Binance return over BUSD, which is used to help market participants move faster into and out of the crypto industry. The New York Agency of Financial Services, the sector’s regulator, halted Paxo’s Binance minting on February 21, as US officials increased their examination of crypto trade rules.
Paxos confirmed that it will comply with the NYDFS directive to stop minting new stablecoins on February 21, though, and will continue to oversee BUSD dollar reserves.
“BUSD will continue to be fully supported by Paxos and refundable to running operations customers till February 2024,” the company stated in a declaration.
How Are Paxos and Binance Related?
To understand the implications here, we must understand the relationship between Paxos and Binance. Paxos is the “official” creator of BUSD, which is a token backed by dollars and issued on the Ethereum (ETH-USD) blockchain. However, Paxos has a licensing agreement with Binance, and Binance mints BUSD on its own blockchain, the Binance Smart Chain.
This BUSD, however, is not subject to the same regulations and constraints as the BUSD minted by Paxos on Ethereum. In fact, it was revealed that BUSD on the Binance Smart Chain was at one point left undercollateralized by $1 billion.
Though from a regulatory standpoint, you could argue it’s Paxos being attacked, BUSD is most strongly associated with Binance. It’s interesting to note, too, that Paxos has stopped BUSD minting. It is still minting USDP, which is also a dollar stablecoin. Technically. BUSD has lost its peg to the dollar, but this is a negligible difference:
BUSD now trades at $0.9993. The peg is being maintained for now, but that doesn’t guarantee it won’t depeg in the future.
The effects have also been felt in Binance’s native token BNB. BNB is down 11% in the last 24 hours, but this is to be expected given the broader market sell-off. Ethereum, for example, is down 7% on the last day.
We Haven’t Heard the Last of Stablecoin!
One thing is for certain, though; crypto is not going to take this lying down. Paxos has said it will fight “vigorously” against the SEC lawsuit. The Coinbase CEO also stepped in yesterday, announcing the company will “Defend Staking in Court if Needed.”
“Just ask the Lebanese citizens who are opting to use U.S. dollar stablecoin tether to pay for groceries as their country’s sovereign currency tanks and the economic crisis continues to unfold.”
This new wave of crypto regulation may have taken the wind out of the current crypto rally. However, I still view this as an overall bullish thing for crypto.
Let the chips fall where they may, but at least let them fall. Clear regulations will open the door to institutional acceptance and remove uncertainty.
These regulations will create a different playing field and bring about winners and losers. The winners will be those looked on favorably by regulators. This is already becoming very clear.