Binance Loses Nearly $1B in Crypto Withdrawals As Paxos Forced To Halt BUSD Minting

Crypto enthusiasts were in for a shock when Binance, the world’s largest crypto exchange, saw a staggering $1 billion worth of crypto withdrawals within 22 hours. 

According to data shared by Ali Martinez, a renowned crypto analyst, the unprecedented surge was sparked after Paxos, the issuer of BUSD stablecoin, was ordered to stop minting new tokens.

The sudden move sent ripples across the market, with many traders rushing to pull their assets out of Binance. On-chain data from 21Shares’ Dune showed that Ethereum withdrawals from Binance amounted to $900m on February 13, marking the largest single-day outflow since November 24.

Although the reason behind the crackdown on BUSD remains unclear, sources suggest that Circle, the issuer of USDC stablecoin, might have played a role. Reports suggest that Circle raised concerns with Paxos about Binance-Peg BUSD, which is a variant of BUSD and was listed on Binance last year.

The development has left the crypto community divided, with some calling it a victory for decentralization while others fear that it might trigger a market crash. However, Binance has assured its users that their assets are safe and that the exchange will continue to function as usual.

As the crypto industry continues to evolve, incidents like this highlight the need for greater transparency and accountability from issuers and exchanges alike.

The development raises concerns over the stability of stablecoins, which are designed to offer price stability and liquidity in the volatile cryptocurrency market. 

Stablecoins have become increasingly popular among crypto investors and traders, with BUSD being one of the fastest-growing stablecoins in recent months.

The latest incident highlights the potential risks associated with stablecoins and the importance of regulatory oversight to ensure their stability and security. It remains to be seen how the crypto market will react to the sudden halt of BUSD token minting and the subsequent outflow of assets from the leading exchange.

NYDFS’ into Binance-Pegged BUSD Draws Attention

In a recent tweet, Collins Belton’s attorney suggested that the New York Department of Financial Services (NYDFS) may have a specific focus on Binance Pegged BUSD in its ongoing investigation of Binance. 

While ML/OFAC investigations may have increased attention, the attorney believes that the NYDFS’ real motivation is related to alleged instances of Binance Pegged BUSD falling short of full backing. This revelation comes as no surprise, given the NYDFS’ past experience with Tether.

Belton’s attorney also speculated that the SEC might be taking a similar approach to Binance’s stablecoin offerings. It remains to be seen whether the SEC will go after straight BUSD or if Binance Pegged BUSD will be a primary focus. At this time, however, these remain speculative thoughts.

The NYDFS investigation and potential SEC involvement underscore the growing scrutiny on stablecoins and their backing. 

As the industry continues to evolve, regulators are looking to ensure that stablecoins are fully backed and not subject to market volatility. Binance, as one of the largest crypto exchanges, is now in the spotlight and will need to address these concerns to maintain its position in the market.

Related Reading | Paxos Under Fire: SEC Alleges BUSD is Unregistered Security, NYDFS Orders Halt of Issuance