The world’s largest crypto exchange shakes up the stablecoin race

The world’s largest exchange operator wants customers to trade with its namesake stablecoin rather than others.

Why it matters: The move is a coup for Binance, which is using its weight to boost Binance USD, the third-largest stablecoin in circulation, to the detriment of its larger peers — Circle’s USDC, No. 2, and Tether’s USDT, No. 1 .

Driving the news: Binance said on Monday that it will automatically convert its customers’ dollar-pegged stablecoins such as USDC, Paxos’ paxdollar (USDP) and trueUSD (TUSD) into Binance USD (BUSD), effectively removing competing coins from the exchange.

Big picture: In fact, the fiat-backed stablecoin market is a three-horse race, with market share almost evenly split between Tether and now Binance/Circle, per data compiled by The Block.

• Binance’s forced conversion of client assets consolidates power within its ranks, with BUSD and USDC combined market capitalizations of $71.3 billion just exceeding USDT’s $67.5 billion.

What’s up: Starting September 29th, existing USDC, USDP and TUSD balances in user accounts will be automatically converted, associated trading pairs such as BTC/USDC will also cease trading and any bets on these assets will also be liquidated.

• But deposits and withdrawals can still be made in the other stablecoins, meaning that Binance has effectively created these stablecoins replaceable with another.

What they say: “This conversion is already an accepted practice in the industry and has proven to be in the best interest of users above all else,” Patrick Hillman, head of communications at Binance, said in an email to Axios.

• He added: “This move was discussed and agreed with Circle/USDC and other third parties before this decision was made.”
• Of note: Binance’s stablecoin is technically issued by Paxos, a New York State regulated firm that has a white-label stablecoin business.

Crystal’s thought bubble: Remember Disney Dollars? Disney offered customers a 1:1 equivalent of US dollars guaranteed by Scrooge McDuck to spend on merchandise and food at the theme parks. There is nothing really wrong with Binance wanting its customers to trade BUSD in its own ecosystem in the same way.

• What is perhaps uncertain about Binance’s move is that it forces customers to choose – the equivalent of Disney exchanging customers’ Legoland and Harry Potter dollars for Disney dollars right at the gate.

Flashback: Binance initially only encouraged switching between stablecoins, touting “ultra-low costs” to do so for a select few fiat-backed with Binance Convert in early June.

The other (same) side: “While optimizing dollar liquidity on the world’s largest exchange may have benefits, the paradigm raises potential market behavior questions,” Rachel Busch, a spokeswoman for Circle, said in a statement in response to Axios’ questions.

• Circle CEO Jeremy Allaire on Tuesday tweeted: “Given how limited BUSD usage is outside of Binance, this is likely to favor USDC usage as the preferred cross-CEX and DEX stablecoin rail.”
• Yes, but: Circle will see a loss in revenue as a large portion of USDC balances will be converted to BUSD. (USDC in circulation has already fallen about 5% over the past 30 days, while BUSD has risen 11%, according to data compiled by CoinGecko.)

What others say: Evgeny Gaevoy, head of market leading manufacturer Wintermute, tweeted that the move is a net positive for liquidity, because trading would not be split between a number of dollar-backed stablecoins, but also a net negative for Tether and Circle.

• “This is the first shot in the upcoming USDT/USDC/BUSD race to become the leading stablecoin over the next few years. Tether and Circle will undoubtedly respond,” Gaevoy told Axios.

The intrigue: “We will potentially see other exchanges switch/decide which stablecoin they want to support — for most of them it’s a question of efficiency just like it is for Binance,” he says.