Circle, the company behind the USDC stablecoin and a competitor to Binance’s BUSD, notified New York’s financial watchdog in the fall of last year about irregularities that its team had uncovered from blockchain data. The confidential information revealed that Binance did not store sufficient cryptocurrencies in its reserve to support the tokens it had already issued through Paxos.
War Of The Stablecoins
The news comes just hours after the regulator instructed Paxos, the leading regulated blockchain and tokenization infrastructure platform, to stop issuing the Binance USD stablecoin, citing “several unresolved issues related to Paxos” and its undefined relationship with the Binance exchange regarding the branded stablecoin.
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Many speculate the tip-off by Circle came after Binance reportedly stopped its support for USDC and instead started auto-converting them into BUSD late last year. As a result of this action, Circle’s dominant share of the stablecoin market steadily shrank. However, a similar attempt was made by Coinbase as well, which launched a zero-fee swap for retail customers to exchange USDT for USDC. Coinbase worked with Circle in issuing the USDC stablecoin and is one of its founding members.
Circle’s Major Concern on BUSD
What can be regarded as a “cold war for stablecoins”, the rationale behind the filing of a complaint to NYDFS against BUSD come under the pretense of a brewing rivalry that is present as an underlying current among market players.
The primary concern raised by Circle was that Binance mints its own versions of third-party coins like Bitcoin and Ether, as well as Circle’s USDC and Paxos’s BUSD, in order to make those coins usable on blockchains other than the ones for which they were originally designed; such as the platform’s very own BNB Smart Chain. The crux of the issue that Circle brought up was — these coins, which are referred to as Binance-peg or B-Tokens — were supposedly inconsistent with the 1:1 ratio as proclaimed by the crypto exchange.
In conjunction with this, the B-Token version of Circle’s USDC was also impacted. According to reports, on one instance, Binance had just $100 million in stored collateral to cover the massive $1.7 billion in Binance-peg USDC. As things currently stand, Circle’s USDC has roughly $40.8 billion in circulation while BUSD has around $15.8 billion, according to CoinGape’s crypto market tracker.
