Binance's forced USDC conversion, insufficient reserves killed BUSD

Binance's forced USDC conversion, insufficient reserves killed BUSD Cryptocurrencies

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Circle is also regulated by the NYDFS, and the complaint was made in Sept. 2022, shortly after Binance implemented a new policy that automatically converted all USDC deposits held on the exchange into their own BUSD stablecoin. As Binance was and remains far and away the largest cryptocurrency exchange in the world, this move significantly decreased Circle’s share of the stablecoin market.

“We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services ,” he wrote. “Paxos is regulated by NYDFS. BUSD is a stablecoin wholly owned and managed by Paxos.” He also added that “The lawsuit is between the US SEC & Paxos.” The regulator explained that while they “authorized Paxos to issue BUSD on the Ethereum blockchain,” they did authorize “Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos.” This directly contradicts CZ’s assertion that Paxos is the sole issuer and redeemer of all BUSD.

If Paxos was licensed to issue BUSD on Ethereum and obliged to maintain audited records proving 1:1 backing, but Binance effectively issued BUSD on their own exchange through conversion without licensing or proofs of reserves, then this would explain the nature of the “unresolved issues” the NYDFS cited in Paxos’ relationship with Binance. Paxos, a U.S. regulated entity, is ultimately on the hook to redeem every BUSD in existence for a U.S.

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