BUSD’s Downfall, Navigating the Storm of its Decline

A notable crypto development on the horizon is Binance’s decision to terminate support for BUSD. The CEX is scheduled to take effect this Friday. This move comes in the wake of New York regulators instructing Paxos to halt the minting of BUSD earlier in the year.

While BUSD redemption for fiat through Paxos remains possible until February, Binance appears to expedite the deadline for retail BUSD holders. You can get this kind of research by subscribing to Altcoin Buzz Alpha.

Inception and Rise of BUSD

The genesis of BUSD dates back to 2019 when Binance collaborated with Paxos, a New York-based entity, to introduce the stablecoin. The timing was opportune, coinciding with the increasing popularity of stablecoins like Tether’s USDT among crypto traders seeking a haven from market volatility.

The leading CEX marketed BUSD as a transparent and regulated alternative, with Paxos overseeing issuances and redemptions. Binance committed to ensuring that US dollar reserves held in Paxos-managed bank accounts fully back every BUSD token.

Over the subsequent three years, BUSD gradually gained traction, reaching a circulation of over $16 billion by early 2023 and securing its position as the third-largest stablecoin. However, the celebration was cut short.

Regulatory Intervention and Consequences

In February, the New York Department of Financial Services ordered Paxos to cease issuing new BUSD tokens. The regulator cited “unresolved issues” related to the oversight of Binance’s association with Paxos and raised concerns about the reserves backing BUSD.

While users could still redeem existing tokens, this move effectively prevented the introduction of any new BUSD into circulation. In August, succumbing to global regulatory pressures, Binance agreed to withdraw support for BUSD gradually:

  • The cessation of support for BUSD by Binance is set for December 15, allowing users to redeem BUSD until February 2024.
  • However, withdrawals will cease on December 31st, with any remaining balances automatically converted to FDUSD.
Pre-Regulatory Challenges

Source: CoinMarketCap

Before encountering regulatory hurdles, BUSD held a prominent position among stablecoins in terms of market capitalization.

  • It reached its zenith at over $23.3 billion in November 2022, notably peaking just a day after the declaration of bankruptcy by FTX.
  • The subsequent two months witnessed a decline, with its market cap plummeting to $16.23 billion, marking a substantial 31% decrease.
  • In the subsequent two months, the descent continued, reaching $8.41 billion and experiencing a rapid decline. Currently, BUSD’s market cap has sharply fallen to approximately $1.4 billion.

The aftermath of FTX’s collapse and the persisting impact of the bear market are predominantly the causes for the substantial decline in BUSD’s market cap. This departure unfolds against a time when stablecoins show signs of a modest resurgence.

Stablecoin Supply Dynamics

At the beginning of the year, stablecoin supply stood at $138 billion, according to The Block’s data. By early October, it had dipped to $121 billion.

  • However, a broader market revival in October halted the decline, and by the close of November, the total supply rebounded to $126 billion.
  • While not an exuberant comeback, it hints at a potential turnaround in the market sentiment.

DeFi, an integral use case for stablecoins like BUSD, witnessed a concurrent resurgence starting October 19. Total value locked (TVL) in DeFi protocols surged by 28% in just over a month, aligning with the stabilization and recovery observed in the stablecoin and broader crypto market.

An Epoch Closes for Binance

The decision to wind down BUSD had already been set in motion when Binance and its former CEO Changpeng Zhao admitted to serious criminal wrongdoing and reached an agreement with the U.S. Department of Justice.

Contemplating this, one might ponder whether, absent the criminality, non-compliance, and legal entanglements surrounding Binance, BUSD could have prospered. However, the magnitude of the legal challenges makes this question exceedingly difficult to answer. The winding down of BUSD signifies the conclusion of an era for Binance.

Unfortunately, the legal issues and clashes with regulatory authorities overshadow the legacy of this stablecoin rather than its initial promise of providing traders with a sought-after stablecoin.

Monitoring BUSD and BNB

Keeping an eye on $BUSD is crucial because one billion remains in circulation on the BNB Smart Chain, with several hundred million still integrated into DeFi protocols. This situation raises concerns for BNB, as unresolved BUSD holdings could pose challenges for withdrawal or redemption. Fortunately, the potential impact on the broader crypto market is likely minimal.

The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.


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