This analysis concludes that the recent crackdown on Binance USD (BUSD) is not expected to result in any “major structural changes” in the cryptocurrency sector.
U.S. Securities and Exchange Commission (SEC) issued a Wells Notice to Paxos a few days ago for offering an unregistered asset, the Binance USD stablecoin (BUSD). In response, Paxos has announced that it would cease issuing new stablecoin tokens as of February 21, 2023.
Investors have been pondering the potential fallout of this scandal for BUSD, one of the main participants in the market (it is now ranked number seven on the list of the largest cryptocurrencies by market cap). This issue was recently covered in Arcane Research’s most recent weekly report.
The company claims that Binance, not BUSD issuer Paxos, is the primary target of the enforcement action. Paxos has said that BUSD redemptions will be available until at least February 2024, with USDP, their own stablecoin, being one of the two methods to withdraw funds (the other being US dollars). It’s hoped that this would give Circle confidence that it can avoid the same outcome with its USDC stablecoin.
One possible shift in the market is how various stablecoin pairings do in terms of the amount of trade they transact against Bitcoin.
Bitcoin spot trading volume domination of the BUSD pairings has increased from 16% to 27.6% over the last half a year, as seen in the graph. Binance’s decision to eliminate fees and centralise all of its stablecoin pairings into BUSD was a key driver in this shift. Throughout this time frame, USDT had a 3.5% decrease in its share of the spot market.
The new incident may signify that the stablecoin’s trading supremacy has reached its peak, at which point USDT may once again acquire market share.
Arcane Research predicts a precipitous drop in open interest for BUSD pairs in the offshore derivatives market, which might manifest as a shift towards linear USDT perps or inverse perps. Nevertheless, BUSD pairs currently play a very modest part in the open interest for Bitcoin and Ethereum perps.
The paper concludes that “for the time being, this is not expected to constitute a major big fundamental shift to the market.” The emphasis on BUSD rather than USDP may indicate that enforcement against USDC or the non-U.S. domiciled USDT is less probable, but would have far-reaching consequences, nevertheless.
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