Stablecoins.
They’re like the mid-point between cryptocurrencies and fiat currencies. Kinda like how power walking is the mid-point between walking and running.
Yeah, this weird sport 👇 and it’s in the OLYMPICS!!
But seriously, stablecoins are a large part of the crypto ecosystem.
Get this – every 1 in 4 fiat currencies traded, are traded for stablecoins.
Stablecoins are traded more than Bitcoin and ETH combined. 🤯
And stablecoins were hit by a massive 🥊 last week.
Kinda like that massive blow Will Smith hit Chris Rock with at last year’s Oscars.
Last week, a regulatory body in the US literally stopped the minting of the third largest stablecoin — BUSD.
BUSD = Binance USD.
But Binance neither issues it nor operates BUSD. 😖
All it does is brand the 💩 outta BUSD kinda like how Redbull is this caffeinated energy drink, but it’s branded as this company for adventure junkies.
BUSD is operated by Paxos Trust, a New York-based financial services company.
Fun fact: Binance, the crypto exchange, holds 90% of the circulating supply of BUSD on behalf of Binance customers. And every USDC sent to Binance auto-converts to BUSD.
But on February 12, Paxos was slapped with a notice from the New York Department of Financial Services (NYDFS).
The notice told Paxos to do 3 things:
- Stop minting BUSD
- End its relationship with Binance
- Redeem all BUSD for US dollars in a 1:1 manner
Yikes 😳
And in less than a few days, Paxos decided to fold to regulators.
Think about it:
- $13 billion market cap crypto
- held by over 6 million crypto investors
- #7 largest crypto | #3rd largest stablecoin
Just folded to regulators.
But you gotta ask – what are the regulators’ problems with BUSD?
3 problems.
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1️⃣ Association with Binance
US regulators look at Binance like I look at people who eat the first and last slices of a loaf of bread 🤨
The regulators are fine with Paxos launching the BUSD stablecoin on Ethereum, because they’re comfortable with Ethereum. 👍
But the NYFDS expects that with Binance in the picture, BUSD would spillover into other blockchains – like the Binance Smart Chain, which it has less oversight on. 👎
And that’s a BIG NO-NO.
2️⃣ Poor risk assessments
One of the accusations against Paxos is that it didn't conduct enough risk assessments of BUSD customers. 🥶
Here’s what they said:
“Paxos violated its obligation to conduct tailored, periodic risk assessments and due diligence refreshes of Binance and Paxos-issued BUSD customers to prevent bad actors from using the platform.”
Since BUSD was used by shady people everywhere through Binance and issued by an American company (Paxos), the NYDFS could sit comfortably with this.
3️⃣ Not backed 1:1
Now, this is not something that the NYDFS mentioned in their notice. But it was likely what made them look at Paxos like this 😠
This was brought to light by Circle, the issuer of USDC, the second-largest stablecoin.
Fun fact: Binance auto-coverts all USDC received on a customer’s exchange address to BUSD.
Circle sent a message aka snitching to regulators that Binance does not store enough crypto in reserve to back the tokens it issues.
This is prolly how they did it:
Here’s what they allege:
👉 Binance issues a ton of tokens on the Binance Smart Chain
👉 These are called Binance peg tokens (or B-tokens)
👉 To issue 1 B-token = Binance should hold 1 actual token in reserve
👉 Binance holds these tokens in a wallet called Binance 8**.**
👉 Binance 8 is the same wallet that holds Binance’s customer funds
And this is not backed 1:1.
That, ladies and gentlemen and bored apes, is why BUSD went from 🚀 to down the 🚽.
The aftereffect?
No more Binance-branded things? ❌
No more dollar-backed stablecoins! ✅
Seriously, even Changpeng Zhao, the CEO of Binance, is thinking of moving away from USD-backed stablecoins to not have to deal with US regulators.
Is this a sign of things to come?
Here’s what they allege:
👉 Binance issues a ton of tokens on the Binance Smart Chain
👉 These are called Binance peg tokens (or B-tokens)
👉 To issue 1 B-token = Binance should hold 1 actual token in reserve
👉 Binance holds these tokens in a wallet called Binance 8**.**
👉 Binance 8 is the same wallet that holds Binance’s customer funds
And this is not backed 1:1.
That, ladies and gentlemen and bored apes, is why BUSD went from 🚀 to down the 🚽.
The aftereffect?
No more Binance-branded things? ❌
No more dollar-backed stablecoins! ✅
Seriously, even Changpeng Zhao, the CEO of Binance, is thinking of moving away from USD-backed stablecoins to not have to deal with US regulators.
Is this a sign of things to come?
🤔
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