Paxos, the issuer of Binance stablecoin BUSD has announced that they will no longer mint assets pegged to the US dollar starting February 21st.
The move was made in response to the SEC's threat of legal action accusing the New York Department of Financial Services (NYDFS)-regulated company of selling unregistered securities, even though BUSD is a stablecoin.
In a statement on February 13, the company said:
"Paxos generally disagrees with SEC staff because BUSD is not a security under federal securities laws."
The sequence of events, it has created panic in the market and market players started selling/exchange BUSD as soon as possible. Paxos states that its BUSD reserves are fully backed 1:1 to the US dollar, but that does not prevent them from converting the stablecoin. A handful of industry analysts have labeled it a covert attack on Binance.
The panic has caused BUSD to do 2.2% in supply in just a few hours. Before the announcement, there was $16.15 billion BUSD in circulation, but in the last 12 hours, it has shrunk to $15.79. This means that approximately $360 million has been redeemed.
Furthermore, outflows from Binance have also surged as investors react to the news. Data from Nansen shows that there have been more than $830 million outflows from the platform in the past 24 hours. Exchange activity on February 13 marked the largest daily net outflow from Binance since November.
Binance reserves are being tested as BUSD comprises the second largest reserve asset after Tether (USDT). With reserves of around $13.4 billion BUSD, the stablecoin accounts for about 22% of its total treasury.
Furthermore, BUSD temporarily lost its peg as redemption volumes began to rise. However, Chief Executive Officer Changpeng Zhao said the FUD was indeed temporary.
BNB crypto also took its toll today as BNB traded down 5% on the day at $293 at the time of writing. Before the Paxos announcement, BNB was at around $315.
The exchange's assets have now lost 10% over the past week as the crypto market began to decline. Furthermore, BNB is down 57.4% from its May 2021 all-time high of $686, but this decline is not as deep as Bitcoin or Ethereum, despite FUD and regulatory crackdowns.
