Investors have pulled more than $6bn out of a Binance-branded digital token in the past month, in a sign that a recent US regulatory crackdown on digital assets is putting pressure on the world’s largest crypto exchange.
New York’s financial regulator last month halted new issuance of the stablecoin, known as BUSD, citing “several unresolved issues” relating to Binance’s relationship with Paxos, the company responsible for minting the dollar-pegged token.
Since then holders have rushed to withdraw their cash, causing the BUSD in circulation to fall by more than a third, according to data from blockchain analytics platform Nansen.
Analysts said the outflow could act as a drag on the financial performance of Binance.
“This will probably hurt Binance’s bottom line as BUSD is a significant part of the business,” said Ilan Solot, co-head of digital assets at Marex Solutions.
The outflows come as US authorities step up their scrutiny of the crypto industry following last year’s unprecedented market crash and a series of scandals that culminated in rival exchange FTX falling into bankruptcy in November. Among their targets are stablecoins, which play a crucial role in crypto trading, allowing investors to switch between various digital tokens without withdrawing their cash in the form of fiat currency.
Following New York’s crackdown on BUSD, Binance said it expected BUSD trading volume “will move to other stablecoin pairs over time”.
Earlier this month chief executive Changpeng Zhao said BUSD was never “big business” for the exchange, adding that Binance intended to support as many other stablecoins as possible.
Even so BUSD represented roughly a fifth of Binance’s trading volume in the last year, climbing to as much as 40 per cent in December, according to data from CryptoCompare.
Binance said last year the vast majority of its revenues came from trading fees. However, last year it waived charges for trading BUSD against some digital tokens in an effort to raise market share.
“If Binance does in fact generate 90 per cent of its revenue from transaction fees, then it is likely that a reduction in overall volumes will put some strain on the exchange’s revenue,” David Moreno Darocas, research lead at data provider CryptoCompare said.
This week US-listed exchange Coinbase also said it would delist BUSD because the dollar-pegged token “no longer met our listing standards”.
Binance’s BUSD troubles come at a time when the world’s largest crypto exchange is facing scrutiny from American regulators as part of a wider pushback against digital assets in the US.
Earlier this month, Zhao said Binance intended to pull back on potential investments in the US, an announcement which followed the Securities and Exchange Commission launching a blitz of enforcement actions against key crypto companies.
The SEC also recently opposed Binance US’s proposed $1bn acquisition of the assets of bankrupt crypto lender Voyager Digital, warning that part of the rescue package may violate securities law.
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