Binance’s BUSD Faces Major Market Cap Decline, Dropping by 95%

• Binance USD (BUSD) fell out of the top five stablecoins due to a 96% drop in its circulating supply, triggered by regulatory troubles and a lack of user confidence.
• Legal issues, including a $150 million fine on Binance’s CEO, Changpeng Zhao (CZ), and regulatory challenges, have affected Binance’s market response, while the stability of BUSD remains uncertain.   

Binance USD’s recent troubles began when its circulating supply dipped below 1 billion tokens, marking its lowest point since December 2020. Data from Crypto News Flash reveals that BUSD’s current circulating supply stands at 927 million tokens, a staggering 96% decrease from its peak supply of 23.45 billion. This decline has affected its supply and significantly impacted its trading volume, which has now hovered at less than $50 million in the past 24 hours.

Regulatory Challenges and Labeling as a Security

The difficulties facing BUSD date back to the previous year, when the cryptocurrency exchange Binance was sued by the U.S. Securities and Exchange Commission (SEC), which classified it as a security. Due to this SEC designation, the cryptocurrency community felt uneasy and less confident in BUSD.

The New York Department of Financial Services ordered BUSD issuer Paxos to stop issuing new assets, further compounding the regulatory problems. It’s important to note that Binance and Paxos sharply challenged the SEC’s designation.

In response to these legal measures and the waning trust in the BUSD, Binance moved quickly to support a number of stablecoin substitutes. They include TrueUSD (TUSD) and First Digital USD (FDUSD), which Binance users have been actively encouraged to consider as viable possibilities.

On January 5, Binance automatically converted the BUSD holdings of eligible customers to FDUSD to move them away from BUSD. Additionally, Binance no longer permits BUSD withdrawals and advises customers to manually convert BUSD tokens into FDUSD tokens via Binance Convert at a 1:1 conversion rate.

The Stablecoin Dominance Landscape

New entrants into the top five stablecoins on the market, including TUSD and FDUSD, which are both aggressively promoted by Binance, have emerged in response to the drop in market capitalization of BUSD. But Tether’s USDT, with a market capitalization of over $90 billion, continues to be the unchallenged leader, holding almost 70% of the stablecoin market. Closely behind, with a market capitalization of $24.56 billion, is Circle’s USDC.

According to Tom Wan, a researcher at 21Shares, a stablecoin needs to fit in with DeFi platforms, interface with centralized exchanges, and perform useful tasks like payments and remittances to effectively compete with these major players.

Binance's BUSD Falls below 1B Supply. At its peak, it has 23.45B supply (Dropped 95%)

It is now the 6th largest stablecoin behind FDUSD

For Stablecoins to challenge USDC/USDT, there are 3 main factors imo:

1. CEXs Integration
2. DeFi Integration
3. Remittances & Payments pic.twitter.com/JTUXfaPpVL

— Tom Wan (@tomwanhh) January 7, 2024

The dynamics of the Binance network were significantly impacted by the decrease in BUSD’s market value. Over the last week, a notable 66.4% decrease in activity on the BNB network has occurred. Concurrently, network income fell by 13.7% within that time frame, suggesting a worrying trend in economic throughput and user engagement.

Legal Complexities and Price Movements

In addition to regulatory challenges, Binance found itself entangled in legal complexities. Changpeng Zhao (CZ), the CEO of Binance, settled with the U.S. Commodities Futures Trading Commission (CFTC), which levied a substantial $150 million civil penalty on CZ. In addition, Binance was ordered to return $1.35 billion in improperly obtained fees. Samuel Lim, the former chief compliance officer, was hit with a $1.5 million fine.

The market’s reaction to the legal obstacles and the ensuing FUD (fear, uncertainty, and doubt) has been impacted by Binance. New initiatives have kept popping up in the Binance ecosystem despite these difficulties, demonstrating the platform’s resiliency.

As Binance navigates these challenges, the stability of BUSD, network engagement, and the resolution of legal issues will significantly shape its trajectory in 2024. With the dynamic nature of the cryptocurrency industry, only time will tell how Binance, BUSD, and the stablecoin market will evolve and adapt to the ever-changing regulatory landscape and market demands.