Binance’s Stablecoin BUSD Takes a Hit As Investors Liquidated $6 Billion Due to Rising Regulatory Concerns

Binance, the world’s largest cryptocurrency exchange, is facing increased regulatory trouble from the U.S. Securities and Exchange Commission (SEC). The SEC has reportedly been investigating Binance’s stablecoin, BUSD, over concerns that it may be classified as a security. BUSD, which is pegged to the U.S. dollar, is a popular choice for investors looking for a stable investment in the volatile world of cryptocurrencies. However, the SEC’s investigation suggests that BUSD may be considered a security under U.S. law, subjecting it to various regulations and requirements. According to the latest data, investors have pulled nearly $6 billion out of BUSD as panic in the crypto community continues to rise. 

BUSD Finds No Revival Plan!

According to CoinGecko, Binance’s stablecoin, BUSD, has experienced an outflow of approximately $6 billion due to a U.S. regulatory crackdown on the token issuer. As of Wednesday, the total value of Binance USD was roughly $10.5 billion, a decline from the $16.1 billion recorded on February 13th. 

On February 13th, Paxos Trust Company, the issuer of Binance USD, announced that the U.S. Securities and Exchange Commission (SEC) had warned them that BUSD should have been registered as a security. In addition, on that very day, the chief financial regulator of New York issued a consumer alert stating that Paxos had been ordered to halt the creation of the token.

As a result, BUSD in circulation has decreased by over a third as holders rush to withdraw their funds, according to blockchain analytics platform Nansen’s data. Analysts have suggested that the outflow could hinder Binance’s financial performance.

Ilan Solot, co-head of digital assets at Marex Solutions, stated,

“This will probably hurt Binance’s bottom line as BUSD is a significant part of the business.”

Investors Lose Trust In Binance

The recent outflows coincide with increased scrutiny of the cryptocurrency industry by US authorities. This scrutiny follows the unprecedented market crash last year and a series of scandals that led to the bankruptcy of FTX, a rival exchange, in November. Moreover, BUSD is getting delisted from major exchanges as Coinbase announced the suspension of BUSD trading on the platform. 

According to data from CryptoCompare, BUSD constituted approximately 20% of Binance’s trading volume in the past year, rising to as high as 40% in December. Despite this, CEO Changpeng Zhao stated earlier this month that BUSD was never a significant aspect of the exchange’s operations and that Binance planned to support as many stablecoins as feasible.

Although Binance claimed that the majority of its revenues were generated through trading fees, the exchange waived fees for trading BUSD against certain digital tokens last year to increase its market share. David Moreno Darocas, research lead at data provider CryptoCompare said, 

“If Binance does in fact generate 90 percent of its revenue from transaction fees, then it is likely that a reduction in overall volumes will put some strain on the exchange’s revenue.”