In a few weeks’ time, stablecoin holders on Binance will find their crypto doesn’t carry the same name, or the same price, as it had previously. The exchange effectively told its users it’ll be digging its long, thin fingers into each of their wallets, taking out their old crypto, and replacing it with their own, store brand version of stablecoin.
Binance, the world’s most popular crypto exchange, told its users late Monday it would convert all USDC stablecoins, the second-most popular stablecoin in the world—along with smaller stablecoins Pax Dollar and True USD—into its own brand of stablecoin, Binance USD.
The company said this move was to “enhance liquidity and capital-efficiency for users,” but although their announcement was heavy on technical details, it was extremely light on the economic reasoning. The company said all coins would be converted on a 1:1 ratio by Sept. 29, and it effectively ends all spot, futures, or margins trading and lending for those particular stablecoins.
What it seems to imply is that Binance wants its staple of stablecoin connoisseurs to trade with BUSD, and only BUSD, as long as they’re on their platform.
All users will be forced to trade with a “consolidated” BUSD balance, although users will still be able to withdraw their funds 1:1 with any of the above stablecoins. Still, it does not get over the fact that the USD stablecoin (which trades as USDT) has a market cap of over $51 billion, according to CoinMarketCap data. The Binance USD coin is sitting at less than $20 billion, as of the time of reporting. Restricting trade of such a major piece of the crypto puzzle (or crypto bubblewhichever you prefer) could give its own offering a major boost over competitors.
The two other stablecoins, although much less popular, are still part of the framework for the full crypto ecosystem. Stablecoins are “pegged” to the US dollar, effectively acting as a fiat currency in the crypto sphere. Some major stablecoins, like USDC, are backed by actual tangible assets. Binance has said BUSD is backed by tangible assets handled by Paxos.
USDT is issued by the crypto firm Circle, which told TechCrunch that much of the transition “has already passed” based on market activity, and that they thought this move presented “potential market conduct questions.” Gizmodo did not immediately hear back from Binance when asked if they had no response to whether they were trying to corner the stablecoin market.
White House admins have previously mentioned that stablecoin issuers should be treated more like banks, meaning they would have to reveal just what assets their stablecoins are tied to. This would present a major problem for the likes of Binance who then might become restricted from short-term proprietary trading. Circle, on the other hand, has already said they are looking for full recognition as a bank already, and seemed to welcome the change.
It’s interesting to note that this move doesn’t target the Tether stablecoin either, which remains the most popular stablecoin on the market. It was just this past July when the company said it had completed integration with the Tezos network to allow deposits and withdrawals of Tether. Tether has already proven less than reliable, having previously become depegged from the US dollar. At least in that case the company could make a case beyond trying to corner the digital currencies market.
Binance itself has struggled to answer some users’ pleas for assistance. A previous report from Gizmodo showed how many user complaints made to the Federal Trade Commission center around how Binance does not offer a phone tech support, leading users confused and disoriented when their accounts suddenly limit withdrawals or they’re otherwise scammed by nefarious accounts claiming to be Binance representatives. And in the meantime, leadership at Binance such as CEO Changpeng Zhao seems to have a sense that this is a necessary move in the face of a still-hurting crypto industry. He even seems to think Winston Churchill—of all the historical nincompoops he could draw on—would agree with him.
And of course this all points to the fact that when users store their crypto on an exchange, they are effectively giving up control over their assets. The recent crypto crash led multiple exchanges to essentially block their users from withdrawing their funds. Binance briefly restricted withdrawals on its own platform in June.