The main cryptocurrency exchange, Binance initially defended itself against a Bloomberg note that its Binance-Peg BUSD stablecoin “does not always appear to have been fully backed by BUSD.”
In a blog post on January 10, Binance said that the basis of the note – later modified to clarify the difference between a pegged and supported stablecoin – was a “temporary mismatch in the support of Binance-Peg BUSD with BUSD.” The news outlet reported that Binance-peg BUSD was often undercollateralized between 2020 and 2021, based on analysis by ChainArgo co-founder Jonathan Reiter, a gap that sometimes exceeded $1 billion.
However, depending on the platform, its stablecoin Binance USD (BUSD) was “fully backed by US dollar cash and cash equivalent reserves” and Binance-Peg BUSD was fully backed by BUSD. The reported mismatch appeared to show data where the stablecoin was not fully supported at times.
“Despite the variances in the data, at no point were trades impacted for users,” Binance said. “There is also no impact to BUSD on ERC-20 issued by Paxos, which is regulated by the NYDFS, audited monthly, and backed by USD cash and cash equivalent reserves.”
Regulators and the media seem to have focused more attention on stablecoins after the bankruptcy of Terraform Labs and its token TerraUSD -now TerraClassicUSD-. The cryptocurrency platform was one of the first in 2022 in a series of bankruptcies and fiascos that included Voyager Digital, Celsius Network, BlockFi, and FTX, affecting thousands, if not millions, of users in the cryptocurrency space.
Tether, one of the largest stablecoins by market cap, came under fire for similar allegations that its USDT tokens were not fully backed starting from a 2019 lawsuit. In September 2022, A US judge ordered Tether to provide proof that its USDT token was backed 1-to-1 with the dollar. Bitfinex and Tether also settled with the New York Attorney General’s Office in 2021, agreeing to pay $18.5 million for misrepresenting the degree to which USDT was backed.
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