Investors rush to commit as Paxos’ BUSD faces regulatory heat, Curve Liquidity Pools reveals | Currency News | Financial and business news

If you’ve been following crypto commentators on Twitter since Sunday, you’ve probably read that US financial regulators’ recent actions against Paxos’ centralized dollar-pegged stablecoin BUSD will push investors toward decentralized, censorship-resistant alternatives.

And while that seems logical, the evidence so far suggests the opposite. Investors appear to be moving away from BUSD and its peers USDC and DAI to Tether (USDT), the world’s largest centralized stablecoin with a market cap of $68.47 billion.

At press time, BUSD made up 81% of the total liquidity of $12.81 million in the busdv2 liquidity pool on decentralized exchange Curve, while the other components of the pool – DAI, USDC, and USDT – made up the rest.

BUSD dominance is up from 69% since Monday morning. In comparison, Tether’s presence has fallen to 3%, the lowest in the pool, according to data from analytics tool Chaineye and Curve, suggesting an increased preference for USDT over BUSD and other centralized stablecoins amid regulatory action.

“Investors are fleeing BUSD even though Paxos has given full assurances that its issuance program is fully secured and properly executed,” Ilan Solot, co-head of digital assets at London-based Marex Solutions, told CoinDesk.

Earlier Sunday, the US Securities and Exchange Commission (SEC) said Paxos intends to sue the company for violating investor protection laws. Additionally, on Monday, the New York Treasury Department ordered Paxos to stop minting new tokens. In response, Paxos said it would stop issuing new tokens and process redemptions until at least 2024.

The real question in all of this is whether or not Circle will receive the same treatment as Paxos, this will determine the impact. I don’t know the answer but will watch closely.

— Hal Press (@NorthRockLP) February 13, 2023

Although the regulatory actions were BUSD-specific, market participants raised concerns that Circle’s USDC could come under pressure next, judging from Twitter comments and the imbalance in Curve’s pool of 3 consisting of USDT, USDC and DAI .

Tether’s percentage of the 3 pool has dropped from 24% to 17.5% in two days, reaching levels last seen before the collapse of Terra in May 2022. In contrast, USDC’s share has increased from 38% to 41%. DAI’s share has increased slightly to 40%, data from Dune Analytics shows.

“Curve’s 3 pool should theoretically consist of three equal parts of DAI-USDC-USDT. But the pool is completely out of whack as investors dumped USDC and DAI for USDT,” Solot said.

The move to Tether might come as a surprise as the largest centralized stablecoin is perhaps the most controversial given that it is unregulated and there is still a lack of transparency about its reserves. On Friday, a New York judge denied an attempt by iFinex, cryptocurrency exchange Bitfinex and stablecoin issuer Tether to block CoinDesk’s request for information about the financial reserves backing the USDT token.

The fact that Tether successfully weathered the turmoil caused by Terra in May 2021 may have boosted investor confidence in the stablecoin. Either that, or the alternatives are dwindling.

“It’s not exactly trust that’s increased, but the perception that the range of available alternatives is narrowing,” Solot said. “For example, Binance will likely have to step back from its goal of establishing BUSDC as the main base for trading on the exchange. Now it is likely that USDT will remain the primary base.”

This story originally appeared on Coindesk

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