Big changes for Binance
Binance, the world’s largest crypto exchange, is facing significant changes in the stablecoin market following the recent decline of its Binance USD (BUSD) token. This article explores why BUSD has been losing ground and what this could mean for Binance in the future.
BUSD Redemption and Market Dominance
After Paxos announced that it would no longer mint BUSD, nearly $5 billion worth of BUSD stablecoins were redeemed in just 12 days. At the time of the announcement, there were approximately 16.1 billion BUSD coins in circulation, but today there are around 11.1 billion BUSD circulating. BUSD’s market dominance has also decreased significantly over the past 12 days, and it was officially removed from the top 10 crypto coin positions.
Currently, BUSD accounts for 1.007% of the aggregate value of the $1.1 trillion crypto economy. As of writing, BUSD is the 11th largest market valuation out of the thousands of crypto assets in existence, with a market cap below dogecoin (DOGE) and above lido.
BUSD Drama Sets Stage
Binance’s decision to give preference to BUSD as a trading pair may have been a mistake that could lead to a significant reshuffling of the stablecoin market. With regulators forcing the issuer of BUSD to stop minting new tranches of the coin, Binance risks running into the ramifications of its decision in September.
This has created an opening for the two other big names in stablecoin markets: Circle’s USDC and Tether’s USDT. According to Kaiko researcher Conor Ryder, USDT will likely be the short-term winner as market makers and perhaps even Binance itself tap that as the trader favorite over BUSD.
The potential shakeup comes as traders continue to move stablecoins off centralized exchanges. Outbound transfers of coins such as USDC and USDT on the Ethereum blockchain have outpaced deposits for nine consecutive days, according to data from Nansen. It is a ramping-up of the withdrawal trend that began in earnest with FTX’s collapse in early November.
“It’s very possible that after all the exchange fear from last year that holders of stablecoins have moved away from CEXs,” said Ryder, referring to centralized exchanges. He said another downward force has been market makers reducing stablecoin liquidity since the start of 2023.
Binance’s BUSD and Its Future
Binance’s bet on BUSD as a trading pair may have been a mistake that could lead to a significant reshuffling of the stablecoin market. The decline in BUSD’s market dominance and the redemption of nearly $5 billion worth of BUSD stablecoins suggests that BUSD may no longer be as popular as it once was.
While the future of BUSD remains uncertain, Binance will need to adapt to the changes in the stablecoin market to maintain its position as the world’s largest crypto exchange. The rise of USDT and USDC and the shift away from centralized exchanges suggest that Binance will need to consider alternative approaches to trading pairs and liquidity.
Overall, the decline of BUSD and the potential shakeup of the stablecoin market suggest that the crypto industry is constantly evolving, and players in the market must be adaptable to succeed. Binance, as the world’s largest crypto exchange, will need to adapt quickly to these changes to maintain its position in the market.