Binance Stablecoin Outflows Top $1B as BUSD Supply Shrinks

Paxos deposit addresses saw a huge uptick in deposits, meaning there’s more redemptions/burns to come, a Nansen researcher said


Source: Shutterstock / Furkan Cubuk, modified by Blockworks


Binance USD (BUSD) has given up millions in supply as the Securities and Exchange Commission (SEC) flagged plans to sue the stablecoin’s issuer Paxos as part of its crypto regulation tightening.

Paxos announced it would no longer mint BUSD after receiving a Wells notice, a notification that signals potential SEC enforcement action, because the token is an “unregistered security.” The issuance of BUSD is now at a forced halt. 

Andrew Thurman, a Nansen researcher, told Blockworks Monday afternoon that various Paxos deposit addresses saw a “huge uptick in deposits, meaning there’s more redemptions/burns to come.”

Over $275 million in BUSD was burned on Monday alone, according to his analysis. He said he wouldn’t be surprised to see the figure go into the billions by the end of the week. 

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Meanwhile, the supply of USDC has dropped some $700 million since Friday. DAI has also slightly fallen, while Tether’s has bucked the trend.

The rationale behind the SEC’s threat puzzles some industry analysts, such as Ivan Hong, Request Finance’s content lead.

“There are two mysteries here,” Hong told Blockworks. “Firstly, it is curious why the SEC chose to target the stablecoin issuer, Paxos, and not Binance — the entity offering the yield on the stablecoin deposits.”

Hong noted the SEC previously targeted Coinbase for offering yield-bearing products, but not Circle, the stablecoin issuer.

“Secondly, it is equally curious that the SEC’s Wells notice did not target USDP, considering that Paxos has also offered yield directly to holders of USDP,” he added.

Paxos said Monday that USDP is unaffected by the latest regulatory moves.

In any case, the SEC’s intent to sue Paxos is expected to have an acute impact on the stablecoin space and flip one of Binance’s core competencies. A Paxos spokesperson told Blockworks that it disagrees with the SEC staff because “BUSD is not a security under the federal securities laws.”

“BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary,” the spokesperson added.

Although Paxos has said it will honor BUSD redemptions until at least February 2024, traders have rushed to redeem their tokens for dollars. 

BUSD currently accounts for 21.8% of Binance’s token holdings, according to Nansen data. But Binance CEO Changpeng Zhao has said the exchange will move away from using the stablecoin as the main pair of trading.

Thurman observed on a 24-hour basis Monday that Binance saw over $1 billion in net stablecoin outflows, representing nearly 6% of its reserves. Kraken too saw similar outflows.

BUSD has shed around $700 million since the start of 2022, representing a 5% reduction in market cap. This figure will be closely watched as the SEC’s plans to take legal action play out.

BUSD is currently the third largest stablecoin, after Tether and Circle’s USDC. The supply of stablecoins increases when market participants acquire the token directly from the issuers, and dwindles when issuers burn the tokens as they are redeemed.

“The entire stablecoin industry is paying close attention to how the Paxos-BUSD situation plays out,” Aaron Kaplan, co-founder of Prometheum, told Blockworks. “It is still too early to fully understand the reasoning behind the SEC’s Wells Notice or the NYDFS order.”

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