What Binance Paxos BUSD issue is really about

🚩 In 10 bullet points:

👇 1) Paxos, a New York based, regulated (by NYDFS) trust company issues and redeems the dollar-backed token BUSD and licenses the name ‘Binance’, so it can be called ‘Binance USD’ – a stablecoin; during the last 24h, BNB dropped -6% and around $2.4bn of shorts have been put on;

👇 2) But the issue does not appear to be around stablecoins per se, what the market initially feared but rather that Paxos was not stringent enough with its oversight of the BUSD;

👇 3) Paxos had violated its obligation to conduct tailored, periodic risk assessment and due diligence of Binance and Paxos-issued BUSD customers.

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So what happened?

👇 4) BUSD has issued $11bn on Ethereum but $4.8bn is also accounted for to be issued on BSC, the Binance Smart Chain, in a tokenized version of BUSD called ‘Binance-peg BUSD’;

👇 5) This ‘peg’ version had made BUSD available on the Binance Smart Chain and accounts for roughly a third of the BUSD issuance now;

👇 6) It appears that NYDFS is now worried that the $4.8bn might not be properly backed or have had issues with being 1:1 backed;

Here is why:

👇 7) On January 24, it was reported that ‘Binance mistakenly mixed crypto exchange’s customer funds with B-token collateral’. A Binance spokesperson acknowledges this error and said the exchange is correcting it.

👇 8) On February 6, ‘Binance to suspend USD bank transfers from Feb 8 onwards, to last ‘a couple of weeks’ until New Banking Partner is established;

👇 9) On February 12, ‘Crypto firm Paxos faces SEC lawsuit over Binance USD token’;

👇 10) Binance has shoot itself a little bit in the foot here but they are working on it and it should be resolved. So should we be really worried? I don’t think so. Is the peg breaking? NO. We are no longer in a bear market where you worry about downside, in bull markets you focus on the upside.