Paxos, the issuer of the Binance stablecoin BUSD has announced that it will no longer mint the dollar-pegged asset from Feb. 21.
The move came in response to an SEC threat of legal action, accusing the New York Department of Financial Services (NYDFS) regulated company of selling unregistered securities, even though BUSD is a stablecoin.
In a statement on Feb. 13, the company said:
“Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws.”
As a result, panic has set in once again, and redemptions of BUSD have skyrocketed over the past few hours.
Binance and BUSD in the Crosshairs
Paxos stated that its BUSD reserves are fully backed 1:1 to the dollar, but that hasn’t prevented the exodus from the stablecoin. Industry analysts have labeled it as a clandestine attack on Binance.
The SEC could choose any stablecoin to attack and went with BUSD, even though Paxos is fully regulated and compliant.
This is the path of most resistance.
Seems like a quiet and misguided attack on Binance.
— The Wolf Of All Streets (@scottmelker) February 13, 2023
The BUSD run has caused a 2.2% decline in supply in just a few hours. Before the announcement, there was $16.15 billion BUSD circulating, but over the past 12 hours, that has shrunk to $15.79. This means that around $360 million has been redeemed.
Furthermore, outflows from Binance have also surged as investors react to the news. Data from Nansen suggests that there have been more than $830 million in outflows from the platform over the past 24 hours. Exchange activity on Feb. 13 marked the largest daily net outflows from Binance since November.
Binance reserves are getting tested since BUSD comprises the second largest reserve asset after Tether (USDT). With around $13.4 billion BUSD in reserve, the stablecoin accounts for roughly 22% of its total treasury.
Furthermore, BUSD temporarily lost its peg slightly when redemption volume started increasing. However, CEO Changpeng Zhao said the FUD was indeed temporary.
FUD is temporary. pic.twitter.com/O2ntcjn2HJ
— CZ 🔶 Binance (@cz_binance) February 14, 2023
BNB Price Reaction
The exchange’s native token, BNB, has also taken a hit today. BNB was trading down 5% on the day at $292 at the time of writing, according to CoinGecko. Before the Paxos announcement, BNB stood at around $315.
The exchange asset has now lost 10% over the past week as crypto markets retreat again. Furthermore, BNB is down 57.4% from its May 2021 all-time high of $686, however, this price decline is not as deep as those for Bitcoin or Ethereum, despite the FUD and regulatory crackdowns.