US regulatory restrictions trigger a $1.4 billion plunge in Binance-branded stablecoin BUSD

(Bloomberg) – A U.S. crackdown on a Binance-branded stablecoin has sparked $1.4 billion in token redemptions in just over two days, according to the coin’s issuer, Paxos Trust Co., in the most recent A shake at a turbulent time for the cryptocurrency sector.

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The circulation of BUSD, the third-largest stablecoin, was $14.6 billion as of Wednesday morning in New York, Paxos said. It was about $16.1 billion as of Monday, according to CoinGecko data. Many investors are opting for Tether, known as USDT, at number 1, which now accounts for just over half of the $138 billion stablecoin market.

Stablecoins are designed to hold a fixed value, say $1. They come in a variety of forms and some are backed by reserves such as cash and bonds. Investors often park funds in stablecoins when moving between crypto trades.

Binance is the largest crypto exchange and BUSD – also known as Binance USD – was coined by a partner, Paxos. A New York regulator asked Paxos to halt new issuance over unresolved issues related to Paxos’ oversight of its relationship with Binance. The Securities & Exchange Commission is separately considering taking action alleging that BUSD is an unregistered security.

“We have not seen extreme redemption levels and Paxos will continue to support the outstanding BUSD for at least a year,” Paxos said in a statement on Wednesday.

This backdrop has led to uncertainty about US stances on stablecoins, including USD Coin or USDC, whose issuer Circle Internet Financial Ltd. is regulated as a licensed money transmitter under US state law.

“The lack of clarity about the regulatory treatment of stablecoins in the US could have significant implications for the industry,” Moody’s associate vice president Cristiano Ventricelli said in a statement. “Capital can migrate to stablecoins issued in jurisdictions with tailored regulatory frameworks.”

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Tether is outside the US and is receiving inflows despite scrutiny of the transparency of its reserves. New York-based Paxos has stated that existing BUSD coins will continue to be fully supported and redeemable until at least February 2024.

(Updates the redemption numbers. An earlier version of the story has been corrected to correct an erroneous number in the first paragraph.)

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