Stablecoin Saga, Binance, and Paxos Ends Relationship

The primary use case of stablecoins is to maintain a stable market value. It allows risk-averse individuals, investors, and traders to hold little or low volatility assets on the blockchain without exiting the crypto space. BUSD, TUSD, USDT, USDC, and DAI just to name a few.

Let us not drift too far from the main matter here, BUSD, and why Binance is dumping them for another alternative stablecoin.

Stablecoin Saga, Binance and Paxos Ends Relationship
Stablecoin Saga, Binance, and Paxos Ends Relationship

Understanding The History of BUSD

BUSD is a stablecoin founded by Paxos and Binance. Paxos has over time leveraged the brain behind blockchain technology to offer digital Service products to external companies. Their past work includes the creation of a gold-backed cryptocurrency called PAX Gold (PAXG). Pax Gold is tradeable on a large variety of exchanges. It has also become an accessible way for traders to start investing in gold. 

In the same vein was BUSD created only this time in collaboration with Binance. The New York State Department of Financial Services regulates both BUSD and PAXG tokens. BUSD is fully regulated by a primary prudential regulator – the New York State Department of Financial Services (NYDFS), offering the apex form of consumer protection. All reserves are held 100% in cash and cash equivalents; hence customer funds are always available for 1:1 redemption. As CZ will often say, “Funds are SAFU.”

It will interest you to know BUSD is not the only stable coin backed by 1:1 US dollars there is and obviously, more will be issued in the future.

The BUSD ecosystem has seen tremendous growth over the years. In 2021, the stablecoin grew from a market capitalization of around US$1B to over US$14.6B at the end of 2021. Furthermore, this makes it the third-largest stablecoin by market cap at the time of writing this article. It is just falling shy behind Tether USDT and Circle-issued USDC. This growth is intentional and is largely due to more user adoption as wallets, platforms, and services, and Decentralized and Centralized exchanges support the BUSD.

Why Did Binance Dump BUSD?

You have come too far to stop reading now. Are you asking why has Binance decided to dump or call it quits with what will have seen so far to be a tremendous growth and masterstroke for both Paxos and Binance? I was in the same curious seat as you now. Well, from what has been gathered so far and the official letter by Binance, some of those curious thoughts of ours have been put to bed.

Fellow Binancians,

Since Paxos announced that it would no longer be minting new BUSD, Binance has swapped out BUSD holdings in the Secure Asset Fund for Users (SAFU) for TUSD and USDT. This swap is to ensure that assets in SAFU continue to protect users in the long term as the BUSD market capitalization continues to decrease over time.

This change will be of no impact on users, and these funds will continue to be on publicly verifiable addresses. BUSD will also continue to be supported on Binance. The SAFU fund will be observed closely to ensure that it is sufficiently capitalized, and topped up periodically, as necessary, using Binance’s funds.

One thing for sure here is clear, Binance has once again prioritized the interest of its customers. But the big question here is WHY? Why is Paxos refusing to mint more BUSD? One could have thought maybe Paxos was caught in the middle of the unfortunate SVB collapse of march 10th, but Paxos has come out to say no, we are free as birds.

Hey, do not get it twisted, Paxos threw the first punch, the above open letter by Binance, is more likely a formal reaction from the February 13th official announcement from Paxos;

Effective February 21, Paxos will cease the issuance of new BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services (NYDFS). Paxos Trust, a regulated institution overseen by the NYDFS and audited by a top-four accounting firm, will continue to manage BUSD dollar reserves. All BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. BUSD reserves are fully-backed and the instruments held by Paxos in reserve as of close of business February 10, 2023 are also available here.

Paxos has always prioritized the safety of its customers’ assets. That was true at our founding and remains true today. BUSD will remain fully supported by Paxos and redeemable to onboarded customers through at least February 2024. New and existing Paxos customers will be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a regulated US dollar-backed stablecoin also issued by Paxos Trust.  

Just September 2022, Paxos through their verified Twitter handle put out the below tweets, giving hallelujah praises to Binance for choosing BUSD as their native stablecoin. 

Binance has made a positive step for the safety of its customers by pushing to support primarily BUSD. Unlike competing stablecoins, BUSD is regulated by NYDFS which sets rules and monitors compliance with those rules. ONLY regulated stablecoins like #BUSD and USDP from Paxos do this, setting us apart from stablecoins issued by MTLs that have no oversight of reserves or governance. BUSD reserves are held by a bankruptcy-remote Trust (Paxos) which offers greater consumer protections, setting it apart from all MTL-issued stablecoins.

When we thought we solve the WHY questions above, there appears to be a bigger WHAT puzzle to solve. What really happened between Paxos and Binance? What happened between September last year to February this year? Well, we all soon find out. 

Personal Note From MEXC Team

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