Binance, the world’s largest cryptocurrency exchange in terms of daily trading volume, is also known for its Binance-peg (Pinned to Binance) Binance USD (BUSD) altcoin. Since this coin is a stablecoin, it is expected to have a reserve. Otherwise, when the coin leaves its constant (de-peg), there may be problems. According to a report, the exchange said that Binance-peg BUSD is not always fully backed by reserves. Here are the details…
Claims on Binance and BUSD
According to a report from Bloomberg, the exchange acknowledged that the Binance-peg BUSD stablecoin was not always fully backed by reserves, but said it has now resolved the issue. Citing an analysis by Jonathan Reiter of blockchain analysis firm ChainArgos, Bloomberg reported that the token was occasionally under-collateralized in 2020 and 2021. A Binance spokesperson told Bloomberg:
The process of maintaining Peg involves many teams and has not always been seamless, which may have caused operational delays in the past. Recently the process has been improved a lot with advanced controls to make sure it always fixes 1:1.
The stock market responded to the allegations
The spokesperson noted that user redemptions were never affected by this issue, but did not detail how long Binance-peg BUSD had been under-collateralized or when Binance noticed and fixed the issue. However, in a blog post published after Bloomberg’s article came out, the exchange clarified that there was a “timing mismatch” in backing Binance-pegged BUSD with BUSD. The exchange used the following statements in the post:
If we look at the data, it is clear that the balance process does not always keep up with the demand for Binance-Peg BUSD. After discovering this ourselves last year, we are now balancing more frequently to ensure that Binance-Peg BUSD is fully backed in a transparent manner.
As we reported on cryptokoin.com, the Binance-peg BUSD stablecoin was created to have a version of BUSD that is tied to the value of BUSD issued by Paxos and can run on blockchains other than Ethereum. Backed 1 to 1 by locked reserves of BUSD. The flexibility of stablecoins and whether they are backed by a reliable stack of coins is a controversial issue in the cryptocurrency industry.
Reserve problem of stablecoins
Stablecoins are for keeping a close eye on the value of something else, usually the US dollar. So if investors invested, say, $10 billion in a stablecoin, in theory there would have to be $10 billion somewhere to back it up. Tether’s USDT, the largest stablecoin, has been tracked for years by concern that it is not fully supported. In 2021, Tether had to pay a $18.5 million fine after the state of New York falsely claimed that its stablecoin was fully backed 1-to-1 by the US dollar.