Binance’s CEO Says Crypto May Move Away From Stablecoins

While the cryptocurrency industry has been on the radar of regulators in recent years, including major exchanges such as Binance, the most targeted aspect is stablecoins. Following the recent saga between Paxos, the issuer of the Binance token stablecoin BUSD, and the Security Exchange Commission (SEC), the stablecoin market has been confused. Investors sought the safest supported stablecoin to save their money.

In accordance Binance Chief Executive Officer (CEO) Changpeng Zhao, popularly known as “CZ”, the cryptocurrency industry may soon evolve away from the ubiquitous dollar-backed stablecoin era to stablecoins that are algorithmically backed by other assets.

Should the crypto industry move to other real word-backed currency?

Following the tightening of regulation around USD-backed stablecoins, the crypto industry is now looking for other options. As Bitcoinist reported, the US Securities and Exchange Commission (SEC) has stepped up its actions against crypto companies, such as Paxos and crypto exchange Kraken.

CZ said in a Twitter Space Q&A on Tuesday:

The amount of pressure placed on stablecoins is quite significant. Several agencies are putting pressure there. That will shrink the USD stablecoin market, so the industry is exploring its options.

Stablecoins are less volatile digital assets backed by fiat currency. Investors use it to reduce exposure to volatility. Over the past few years, stablecoins backed with US dollars have been the most popular. The dollar-backed stablecoin accounts for almost the entire stablecoin market.

Although stablecoins backed by fiat currency, such as the euro, exist, the dollar-backed market is still the most dominant. Tether USDT, USD Coin, BUSD and DAI account for more than 10% of the global cryptocurrency market capitalization.

But as regulators become laser-focused on the regulation of dollar-backed stablecoins, CZ believes the industry could see the rise of other assets and even algorithmically-backed stablecoins. CZ noted“I think we will see more euro or other, Japanese yen, Singapore dollar-based stablecoins.”

Algorithmic Stable Coins are assets that leverage complex combinations of data and trading incentives to maintain one-to-one links to assets such as the dollar. An example of this type stablecoin was Terra’s UST, the digital assets that collapsed in 2022, leading to an acceleration of the crypto bear market.

Terra’s UST crash was triggered by a cascade of redemptions that led to a massive bank run on the asset. This aggressive redemption process ultimately led to UST’s collapse. The stablecoin algorithm failed to maintain the one-to-one balance on the asset. According to CZ:

The regulatory onslaught surrounding stablecoins was likely triggered in part by the collapse of Terra Luna’s algorithmic stablecoin in May.

SEC orders Paxos to stop issuing BUSD

Earlier this week was The New York State Department of Financial Services ordered Paxos Trust Co. to stop the issuance of BUSD, the third largest stablecoin in the cryptocurrency market. According to recent reports, Paxos will end its relations with Binance and stop the distribution of BUSD by February 21st.

Paxos will continue to support BUSD for the next 12 months despite the breach. According to CZ, Paxos only stopped issuing new tokens. “The fact that it’s an orderly winding down is a good thing. People holding stablecoins should not lose any value,” CZ noted.

In particular, CZ has always clarified Binance’s unique connection with the BUSD stablecoin. The CEO stated that BUSD was not his or his team’s idea, but something created by Paxos. Speaking of Binance, the exchange’s native token, Binance Coin (BNB), has struggled to hold its own amid these events.

At the time of writing, BNB is up 3.6% in the last 24 hours after being down 9% in the last seven days. The current market price is still well above $250 and it is looking to break the $300 mark again.

Featured image from Bloomberg, chart from TradingView.