Binance may be losing out on the US market as partner bank and Paxos are restricted. The company acknowledges that its stablecoin is in its last days.
The Binance stablecoin, Binance USD, is one of the top cryptocurrencies by market capitalization. Stablecoin may be on the way out as US regulators continue to move against crypto entities through the introduction of more stringent regulations. As a result, Binance is already searching for an alternative to its stablecoin pegged to the United States dollar.
Exploring new opportunities
At this point, the company is looking to partner with interested entities to find a replacement for BUSD. The company’s chief strategy officer, Patrick Hillman, said that some private and public organizations have indicated interest in collaborating with the exchange in search of a new stablecoin.
“There are very interesting opportunities, particularly in Europe and the Middle East,” Hillman said.
He highlighted the fact that the replacement that Binance seeks may not be based on the United States dollar. This has been confirmed by Changpeng Zhao, the Binance CEO, in a Twitter post where he wrote,
“We are exploring others, including non-USD-based stablecoins.”
This may be a difficult proposition since most stablecoins are pegged to the USD. The largest stablecoin not pegged to the dollar, euro tether, has a market capitalization of $219 million. This is dwarfed by the $13.5 billion market cap of BUSD.
We are exploring others, and non-USD based stablecoins.
— CZ 🔶 Binance (@cz_binance) February 13, 2023
Challenges of non USD-based stablecoin
On the challenges faced by stablecoin issuers in minting non-USD-based coins, Kevin Zhang, the co-founder of DEX Finance, said that the main issue is regulation.
“Stablecoin issuers are looking for ways to properly get regulated without making numerous assumptions and spending insane amounts of money on lawyers to provide opinions,” he said.
He said that with the tougher stance of US regulators, it is high time stablecoins not pegged to the dollar were born.
“Binance being the size that they are and having the reach that they have will always be a relevant player in the stablecoin space.” “The denomination of trading pairs in certain stablecoins creates huge network effects,” he added.
Regulator alleged Paxos lacked tailored, periodic risk assessments
On Tuesday, the financial regulator of New York ordered Paxos to cease issuing BUSD, which the company does on the Ethereum blockchain. This is one of several moves authorities in the US have made against crypto entities in recent months. The New York regulator cited violations linked to poor due diligence checks on the part of Paxos. The checks were supposed to be on Binance as the originating entity of BUSD.
The term “tailored, periodic risk assessments” used by the New York regulator is related to concerns about money laundering. This is the opinion of crypto forensic experts who are well-versed in the illegal use of cryptocurrencies. Paxos is already being investigated by the Securities and Exchange Commission for the violation of investor protection laws.
A move that surprised Binance
A Binance official admitted that the order by the New York regulator took the company by surprise. In an interview with Forbes, Hillman said,
“In our opinion, the BUSD product has always been unbreakable.We haven’t had much time or notice to prepare for this. “There’s a whole host of things that we’re trying to figure out,” he added, “like how people are going to be reimbursed and what the sunset date is going to be for all of this.”
The report, however, said that Binance distanced itself from Paxos when Hillman said that the BUSD minted on Ethereum by Paxos is their product. In other words, Paxos has to manage the risks and responsibilities. This includes reimbursing the investors.
BUSD days are numbered
Hillman admitted that the days of BUSD are numbered since people wouldn’t want to be caught off guard.
“People aren’t going to be looking to buy more BUSD because they’re not going to be certain how they’re going to reimburse it,” he explained. “Along with Ethereum users, there are not going to be users on any chain who would want to be transacting BUSD for that much longer.”
It is now obvious that Binance is losing out on the US market as regulatory oversight tightens. In January, the company’s main US banking partner, Signature Bank, stopped processing transactions worth less than $100,000 denominated in dollars. This means that there is no bank serving as a partner to the exchange at the moment.
“We’ve heard from multiple other banks that they’ve been given a heads up that it might behoove them to move away from servicing crypto platforms in the coming days if they’re planning to operate out of the US,” he said.
Image credit: Forbes