Binance, the world’s largest crypto exchange, was hit earlier this week by significant outflows of funds after a key stablecoin partner was ordered to cease minting new BUSD tokens, a Binance-branded stablecoin.
On Monday, Binance saw net outflows from its exchange of more than $800 million, which ranks as among its largest single day of outflows ever, according to data from blockchain analytics firm Nansen.
Binance’s largest single-day outflow came in December, with the amount of funds leaving the exchange totaling as much as $3 billion in a 24 hour period from Dec. 13 to Dec. 14, as crypto exchange FTX’s collapse in November shook investors confidence in the space, noted Andrew Thurman, a researcher at Nansen.
This week’s outflow happened after the exchange’s stablecoin partner Paxos was ordered to stop minting new BUSD tokens by the New York State Department of Financial Services due to “several unresolved issues” related to its relationship with Binance.
The NYDFS action promoted some clients to “rebalance and derisk their own portfolios,” said Patrick Hillmann, chief strategy officer at Binance, in a call.
NYDFS, a key banking regulator, did not clarify which “unresolved issues” it was referring to when it ordered Paxos to cease minting BUSD. But the agency highlighted in its client alert on Monday that it only authorized Paxos to issue BUSD on the Ethereum blockchain. The so-called Binance-peg BUSD has not been authorized by the NYDFS “on any blockchain,” the agency said.
Binance-peg BUSD was issued by Binance and can be traded on other blockchains, including Binance’s own BSC chain. However, the BUSD coin was issued and managed by Paxos, said Hillmann.
For the past few years, Binance has been pushing aggressively for the adoption of BUSD, while touting that the stablecoin’s issuer, Paxos, falls under the regulation of the NYDFS.
“That’s why it’s most shocking that they are now no longer able to issue this due to regulatory action,” said Clara Medalie, director of research at Kaiko.
Changpeng Zhao, founder of Binance, tweeted Monday that the exchange would continue to support BUSD for the foreseeable future, but also expects to see a migration to other coins over time.
Binance’s Hillmann said the company would shift its focus towards stablecoins issued in other areas of the world, such as Europe, Asia and the Middle East.
Credit: marketwatch.com