Paxos, the industry standard in regulated blockchain and tokenization infrastructure, has announced it will no longer work with Binance on the branded stablecoin BUSD.
New BUSD tokens will no longer be issued by Paxos as of February 21st per the guidance of and in close consultation with the New York Department of Financial Services (NYDFS).
The end of BUSD
Paxos tweet, source: twitter.com
Paxos was ordered by NYDFS to stop issuing new BUSD, the third largest stablecoin in the world, with a current market cap of $16.1 billion. It’s also the seventh-largest cryptocurrency according to its market cap. That is, however, now going to change.
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The dollar reserves for BUSD will reportedly still be managed by Paxos Trust, an NYDFS-supervised and audited by a Big Four accounting firm. All Paxos Trust-issued BUSD tokens have been and will continue to be backed one-to-one by reserves denominated in US dollars.
They remain kept in accounts and are immune to the effects of bankruptcy because of sufficient reserves (1:1). SEC claims BUSD is an unregistered security and that the company is being investigated for “violating investor protection regulations.”
This news caused a tiny depeg of BUSD when it fell by 0.5% to 0.995, and Binance Coin (BNB) dropped by over 5%. However, BNB still remains the fourth largest cryptocurrency according to its market cap.
BNB 7-day chart, source: coinmarketcap.com
The news sent shockwaves through the industry, leaving many investors confused. But Changpeng Zhao (CZ), the CEO of Binance, decided to clear out the air with a Twitter thread, saying “funds are SAFU!”
“As a result, BUSD market cap will only decrease over time. Paxos will continue to service the product, and manage redemptions,” CZ explained.
BUSD currently accounts for a large part of the trading volume on the Binance exchange, which represents only a temporary problem for Binance. But as the biggest cryptocurrency exchange in the world, it is expected to find a solution as CZ stated himself:
“Binance will continue to support BUSD for the foreseeable future. We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly. eg, move away from using BUSD”.
Final thoughts
Essentially, this means BUSD will slowly fade away, but it shouldn’t harm anybody but Binance. Users of BUSD should be able to easily convert their BUSD to USDT, USDC, or other stablecoins. Binance will surely find a way to issue a new stablecoin that can comply with the regulatory requirements of the SEC and other similar institutions.
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