As a reminder, the big news this week was the discontinuation of further issuance of BUSD stablcoin by Paxos. Representatives of the Securities and Exchange Commission and the New York City Department of Financial Services obliged the giant to do it.

The exact nature of the problem is unknown, but it is likely that the reason for the dissatisfaction of regulators have potential problems with the security of BUSD, with which, among other things, Binance itself may be involved.

Binance CEO Changpen Zhao

Other reasons seem unlikely because the value of the BUSD stablecoin is pegged to the price of the dollar. Accordingly, the coin cannot be regarded as an investment contract, and buyers of the token are certainly not counting on the prospect of earnings due to the stability of the coin.

In any case, the activity of US regulators is a wake-up call for local blockchain companies. And according to Binance chief Changpen Zhao, the current situation could lead not only to the relocation of developers and cryptocurrency entrepreneurs, but also the loss of the dollar’s leading role in the steiblockchain space.

What will happen to Stablecoins in the cryptocurrency world

According to Zhao, it “makes sense” to start using gold as a collateral standard for the crypto industry. However, value is overwhelmingly measured in traditional currencies, so they’re not going anywhere in securing stabelcoins.

The Binance executive argues that recent action by US regulators against dollar-based stablcoins will lead to the crypto industry relying on other currencies like the euro, yen or Singapore dollar. Here’s a quote from Changpen Zhao, cited by Cointelegraph.

I think that given the current pressure and regulators’ stance on US dollar-based stackcoins, the industry is quite likely to move to other types of token collateral. As a result, we will see more Euro, Japanese Yen, Singapore dollar and so on-based stablcoins.

Earlier, the cryptocurrency exchange's chief executive confirmed that the company will look for other token issuers. In doing so, the management, among other things, admits the possibility of launching stablcoin based on other fiat currencies like the euro. In theory, this would avoid similar problems in the future, along with unnecessary and unexpected pressure from regulators.

Binance CEO Changpen Zhao

However, it is difficult to believe in such a massive change in a short period of time, and the issue here is the incredible dominance of the dollar among all stackablecoins. According to The Block, as of mid-January 2023, the dollar served as the underlying asset for 99.32 per cent of all stablcoins in the world. By comparison, the euro’s figure was 0.62 per cent.

Distribution of fiat as collateral for stablcoins

The head of the exchange stressed the importance of the role of algorithmic stablcoins – they will continue to occupy a prominent share of the sphere’s capitalisation. However, they will continue to have their own risks that are not inherent to traditional stablcoins.

As a reminder, the security of traditional stablcoins is that their issuer holds an amount of currency or other assets in its accounts equal to the number of tokens in circulation. Algorithmic stackcoins, on the other hand, are backed by smart contracts on a decentralised basis - a principle that is not always reliable, as many investors saw with the Terra collapse last year.

UST Classis stablecoin annual chart

The aforementioned sanctions against Paxos involve the suspension of the issuance of BUSD steiblocoin, with the company having already agreed to comply and will not be issuing the token. Importantly, amid these developments, the capitalisation of the rival coin and most popular stablcoin USDT has risen by 1 billion in about 24 hours.

USDT capitalisation

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The figure rose from $68.47 billion to $69.23 billion earlier this week, according to Decrypt. In the same time period, BUSD’s capitalisation fell from $16.14 billion to $15.46 billion.

BUSD capitalisation

What’s happening is due to capital outflows from BUSD – after threats from regulators, investors are looking for a safer haven for their capital. Tether remains so for now, thanks to its scale. Fortunately, there are no serious threats on the horizon for the coin right now.

That said, Tether has been involved in scandals of all kinds in the past. In particular, rumours of insufficient security for the stabelcoin have often circulated on the internet. However, its issuing company constantly publishes reports on its reserves and strives to make them as stable as possible in terms of volatility and market dynamics. And so far, the creators of USDT are succeeding quite well.

According to DeFi Llama, the dominance of USDT in the Stablecoin space has reached 51.23 percent, with the entire market valued at $136.12 billion.

Stablecoin sphere statistics

In the long term, another stablcoin, USDC from Circle, could benefit more from BUSD’s ‘discrimination’. Earlier, a Binance executive confirmed that his exchange would have to abandon the use of BUSD when consolidating the liquidity of stablcoin. However, the exchange is unlikely to deal with USDC, because the creator of the stabilitycoin drew the attention of regulators to the possible problems of Binance with the provision of BUSD.

The reason for this could be the events of autumn 2022. Recall that in September, Binance began converting most steiblocoins, including USDC, into BUSD when depositing an account on the exchange. This meant that any USDC sent to Binance was effectively converted into BUSD capitalisation, which had a noticeable effect on each coin’s dominance of the market. Well with USDC trades could only be done when exchanged for BUSD.


We think that the fast rejection of USD as a security for Stablecoins is impossible because the capitalization of such coins exceeds $100 billion, and regulators don't create problems for USDT and USDC yet. However, if Binance does create a new stack based on the notional euro and gives it the advantages of BUSD by the type of transactions on the exchange without commissions, then the popularity of such products can really increase. In the meantime, it is worth keeping an eye on the actions of US regulators and being prepared for new possible problems.