Binance has finally admitted that the stablecoin is not very stable

Binance CEO Changpeng Zhao has repeatedly tried to calm investors’ and customers’ concerns about the state of the exchange, although recent reports indicate that a large number of holders are withdrawing their cryptocurrencies from the platform.
Image: Singapore press (AP)

After the dreaded crypto winter of 2022, this year could be just as cold for the declining cryptocurrency industry. More research into the financial underpinnings of the most popular cryptocurrency exchange, Binance, reveals that there are some holes that the exchange is struggling to fill.

Tuesday, Bloomberg BUSD, the stablecoin launched by Binance, has reported losing most of its financial support at various points. At some point between 2020 and 2021, Binance-Peg BUSD had more than $1 billion unsecured, Bloomberg said, based on data from blockchain analytics company ChainArgos.

Stablecoins must be backed by real assets, be it US dollars or gold. They act as a kind of collateral for cryptocurrency transactions, as they do not have the same volatility as practically every other cryptocurrency. When a stablecoin is “depegged,” as in a coin that loses its value 1-to-1 between itself and the US dollar, it can cause a ripple effect throughout the entire cryptocurrency ecosystem. The industry witnessed such a disaster in the Terra/Luna crypto ecosystem in May last year. completely collapsed.

Binance finally admitted it on Tuesday evening blog post Binace-Peg BUSD has indeed lost some of its support several times, although the company tried to claim that there was a “time mismatch” between itself and Paxos, the common issuer of BUSD.

Binance derives Binance-Peg BUSD from Paxos’ own BUSD token. In fact, the stablecoin version of the exchange is backed by BUSD, which is then claimed to be backed by real assets. Binance in the past he explained this strange situation as a means of exchange works on blockchains Apart from BUSD’s native Ethereum blockchain.

A Binance spokesperson told Bloomberg that the process of supporting their stablecoin “hasn’t always been flawless,” but that it has only resulted in “transactional delays.” Binance is linked to both its own site and a number of sites monthly reports From the Paxos Trust, which runs the Paxos blockchain, to show that their BUSD is backed by cash, in this case, US Treasury bills. The last report is from last December.

“Binance has always rebalanced or updated assets at fixed addresses periodically rather than in real time,” the company wrote. “We’re now balancing more often to make sure it’s always 1:1 supported.”

Binance also claimed that this failure to maintain stakes did not affect users. At the same time, it raises further doubts about Binance’s ability to regulate itself. Binance CEO Changpeng Zhao previously stated that his so-called “proof of stock” audit should have shown his collateral. Mazars, the firm that conducted this extremely limited audit last month, dropped all crypto clients Every company, including Binance, has been remiss in failing to disclose the true extent of their financial situation.

Binance is still the largest cryptocurrency exchange by market cap, but according to an analysis conducted by the company, the company has seen a 40% decrease in the number of BUSD it holds in the last two months. Forbes.

The situation is particularly worrying for the stock market. On Tuesday, Forbes reported that Binance customers are withdrawing their cryptocurrencies from the exchange at an alarming rate. The report used data from cryptocurrency firm Defillama, which showed that customers withdrew $360 million worth of cryptocurrency on January 6 alone. According to the report, nearly a quarter of the exchange’s net assets left the building in just a few months.

Binance spokesman Ismael Garcia said in an email that “exits are not accelerating” and suggested the company prefers to judge “the health of the exchange” based on “daily transaction volume.” They added that the Forbes figures were “off by billions,” but did not provide an exact figure for the alleged discrepancy.

Zhao, who often goes by CZ online, has previously tried to reassure investors, clients and him concerns of their employees About $3.7 billion has been withdrawn to this point in mid-December. Now, Forbes reported that since December 15th, Binance has lost 15% of its total assets, even after Zhao. he tried to claim they were good and his exchange did more withdrawals in the past.

Update at 11/11/2023 2:17 PM ET: This article has been updated to include a response from a Binance spokesperson.

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