Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Binance Admits BUSD Stablecoin Was Not Always Fully Collateralized

Published 2023-01-10, 08:51 p/m
Updated 2023-01-10, 09:15 p/m
Binance Admits BUSD Stablecoin Was Not Always Fully Collateralized

CoinMash - Binance, the world’s largest crypto exchange by volume, did not always maintain enough reserves to support its BUSD stablecoin between 2020 and 2021, according to a Bloomberg report.

Binance-Peg BUSD, like other fiat-backed stablecoins, has to maintain a 1:1 reserves ratio to the issued BUSD token. However, due to flaws in management, the coin has sometimes found itself undercollateralized by more than $1 billion on three instances in the past.

“The process of maintaining the backing involves many teams and has not always been flawless, which may have resulted in operational delays in the past,” said a Binance spokesperson to Bloomberg. “Recently, the process has been much improved with enhanced discrepancy checks to ensure it’s always backed 1-1.”

BUSD on Ethereum, managed by New York-based financial company Paxos, maintains a one-to-one reserves ratio to the US dollar. However, Binance-Peg BUSD on Binance Smart Chain is collateralized with Paxos-regulated BUSD.

Whenever someone buys Binance-Peg BUSD, Binance has to acquire an equivalent number of BUSD from Paxos and lock it up on Ethereum. Following this, a user receives their Binance-Peg BUSD on the Binance Smart Chain.

According to data compiled by Jonathan Reiter and Patrick Tan of blockchain analytics firm ChainArgos, Binance-Peg Ethereum wallets “regularly had less than the number of BUSD circulating on the Binance Smart Chain,” indicating someone was creating BUSD out of thin air.

“Because BUSD running on Binance Chain and Binance Smart Chain via the Binance-Peg facility is not a regulated stablecoin, it occupies the no man’s land that Tether’s USDT occupies,” stated the report.

The revelation comes at a time Binance is finding it hard to contain customer withdrawals, which have exceeded $12 billion in just 60 days, and is struggling with trading volumes in the wake of the FTX collapse.

This article was originally published by our partners at Coinmash

Latest comments

Explains him shutting down withdrawals, shuffle shuffle
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.