Binance to forcibly liquidate major stablecoins — but not Tether

Binance has announced that it will forcibly convert third-party stablecoins USDC, USDP, and TUSD into Binance’s own stablecoin, BUSD. After its mandatory liquidation date of September 29, USDC, USDP, and TUSD deposits will immediately be sold into BUSD with Binance holding a small amount of the tokens to support withdrawal requests only.

Note, the name ‘stablecoin’ is used in common parlance but does not guarantee stability. Many stablecoins have collapsed to near-$0, including TerraUSD, IRON, BasisCash, Acala USD, flexUSD, DEUS, BitUSD, CK USD, DigitalDollar, and NuBits. Even the world’s largest stablecoin, Tether (USDT), has intermittently fluctuated from its peg.

Binance will also suspend all trading pairs denominated in its three competitors’ stablecoins and will also suspend staking, savings, liquid swaps, and loans in the three tokens.

The company says it will also discontinue support for gift card creation in these denominations.

According to Binance, it will convert each token at a 1:1 ratio and users may still withdraw denominations in three stablecoins based on their BUSD-denominated balance.

Binance has been slowly liquidating USDC on its platform. It once held $1.5 billion worth of USDC and has offloaded more than one-third.

CEO Changpeng Zhao (CZ) stated that Binance wants to merge stablecoin liquidity into a single pool. He dismissed complaints about anti-competitive business practices.

A Binance spokesperson said the suspension of trading pairs for these three stablecoins will be permanent, unlike its temporary suspension of ETH and wETH deposits and withdrawals during Ethereum’s Merge.

Despite Binance’s decision to de-list the second-largest stablecoin, USDC, Binance’s close relationship with USDT will continue.

Binance and Tether will continue friendly relationship

It’s no coincidence that Binance exempted USDT from its delisting announcement. The two companies have a storied history.

For example, Sussex Professor of Finance Carol Alexander has accused Binance of benefiting from its customers’ failed leveraged futures trades. Historically, many of Binance futures pairs were denominated in USDT.

Read more: Paolo Ardoino clashes with hedge funder over shady Tether disclosure

She also observed a correlation between Binance’s 2019 launch of its futures trading platform and a steep increase in Tether’s market cap. When Binance launched futures trading on its mobile app, the exchange claimed that 60% of its futures customers used USDT-denominated leverage of 20X or more. Traders leveraging the USDT-denominated bitcoin trading pair could even access up to 125X leverage.

Of course, most retail traders using margin lose most of their money. The prevailing counterparty is usually an institutional quantitative or market-making trading firm with massive collateral spread across a diverse set of USDT trades.

Binance first listed Tether for trading in August 2017. At the time, Tether claimed that each USDT was backed by one US dollar.

Binance hasn’t given a reason for its decision to suspend three of the biggest stablecoins other than to improve liquidity and capital efficiency for its users.

In the wake of the decision, Circle CEO Jeremy Allaire tweeted his belief that the “change will likely lead to more USDC flowing to Binance,” (our emphasis). He also claimed that the change will make it “more attractive to move USDC to and from Binance.”

Allaire, of course, has no choice in the matter and can only hope to make the best of CZ’s executive decision to delist USDC-denominated trading pairs from Binance.

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