Last year, Binance, the largest crypto exchange by trading volume, made a significant effort to promote its stablecoin, BUSD.
A surge of $5.5 billion in net redemptions from BUSD over a month and recent rumours regarding the exchange’s viability have halted the momentum. The fall in demand for the stablecoin matched other data in December, indicating withdrawals of crypto deposits on the exchange.
Binance USDT Demands Plummet
According to CoinGecko, the market capitalisation of BUSD plummeted to $16.4 billion on January 3 from $22.1 billion at the beginning of December. According to market capitalisation, BUSD remains the third-largest stablecoin.
BUSD is issued by the New York-based financial technology company Paxos Trust Company under the Binance name. Promises principally support the $1 price that cash and U.S. Treasury notes back it. Like other stablecoins, such as Tether’s USDT and Circle’s USDC, its objective is to convert traditional fiat currency into crypto assets and allow trading.
When holders of BUSD or stablecoins redeem their tokens, the number of tokens in circulation drops while the price ostensibly remains pegged.
Binance officials described the move as an effort to consolidate trading pairs on its exchange platform. The recent decline in the amount of BUSD in circulation wiped out the gains that resulted from the exchange’s September decision to abandon several rival stablecoins and automatically convert deposits into BUSD. Some crypto researchers and industry observers viewed the move as an attempt to position BUSD as a competitor to USDT and USDC, the largest stablecoins by market capitalisation.
In November, the BUSD market value reached $23 billion, up from $18 billion in August, as the auto-conversion went into force.
Then, this month, Binance faced a tidal wave of user withdrawals after an auditing firm’s highly criticised report on the exchange’s crypto reserves shook faith in the exchange’s reliability – especially given the industry was still on edge following FTX’s abrupt demise in November.
Consequently, Mazars suspended all cooperation with crypto clients and removed Binance’s proof-of-reserves evaluation from its website.
“Binance’s auto-conversion was a double-edged sword,” according to Tom Wan, a research analyst at the digital asset investment-product company 21.co. As Binance users withdrew stablecoins from the exchange in USDC and USDT, the platform had to convert BUSD to Paxos and bolster reserves of competing stablecoins to meet withdrawals.
Stablecoin Wars Open New Chapter
Due to BUSD’s recent $6 billion loss, top competitors have gained market share. According to CoinGecko data, the USDT market cap increased by around $800 million to $66.3 billion, while the USDC market cap increased by $1 billion to $65.5 billion.
BUSD managed to gain market share against the once-dominant USDT throughout the entire year of 2022.
According to CoinGecko, the market capitalisation of BUSD increased by 20%, while that of USDC rose by 4%, and USDT declined by 15% during the year. The outstanding value of MakerDAO’s DAI fell by 43%, while the FRAX stablecoin fell by -44%. The drama encompassing Terra’s UST was the most notable collapse.
The stablecoin conflict between BUSD, USDT, and USDC has just begun on centralised exchanges. As a result of currency debasement, what’s worth attention is the demand for U.S. dollars, such as in Lebanon and Venezuela.
Conor Ryder, an analyst at the digital asset research firm Kaiko, stated that the increasing use of stablecoins in developing nations prone to currency devaluation could be crypto’s killer use case.
While the value of the once-$3 trillion cryptocurrency market has fallen to $840 billion, the stablecoin market has held up relatively well, contracting to $138 billion from a high of $188 billion in 2022 – suggesting that many crypto traders view fiat-pegged stablecoins as a safe haven during a bear market.