Chinese-born Canadian Changpeng Zhao, also known as CZ, is a prolific tweeter, but all his talk of “guts” seems to point to attempts to corner the market. Photo: ERIC PIERMONT/AFP (Getty Images )
In a few weeks, stablecoin holders on Binance will find their crypto doesn’t have the same name or price as before. The exchange effectively notified its users that it will dig its long, thin fingers into each of their wallets, take out their old cryptos and replace them with their own private label version of stablecoin.
Binance, the world’s most popular crypto exchange, informed its users late Monday that it was merging all USDC stablecoins, the world’s second most popular stablecoin — along with smaller stablecoins Pax Dollar and True USD — into its own stablecoin brand, Binance USD , would convert .
The company said the move was intended to “improve liquidity and capital efficiency for users,” but while its announcement was full of technical details, the economic rationale was extremely slim. The company said all coins would be converted at a 1:1 ratio by September 29, and it is effectively ending all spot, futures or margin trading and lending for those particular stablecoins.
What it seems to imply is that Binance wants its stablecoin connoisseurs to trade BUSD and only BUSD for as long as they are on their platform.
Binance CEO Changpeng Zhao tried to massage user concerns through a post on Twitter, saying they are “merging all liquidity into one pair.”
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All users will be forced to trade with a “consolidated” BUSD balance, although users will still be able to withdraw their funds 1:1 with any of the above stablecoins. Still, it can’t get over the fact that the USD stablecoin (which trades as USDC) has a market cap of over $51 billion, according to CoinMarketCap data. Binance USD coin is less than $20 billion at the time of reporting. Bringing together the trading of such a large piece of the crypto puzzle (or crypto bubble, whichever you prefer) could give one’s offering a major boost over its competitors.
The other two stablecoins, while much less popular, are still part of the framework for the overall crypto ecosystem. Stablecoins are “pegged” to the US dollar, effectively functioning as a fiat currency in the crypto sphere. Some large stablecoins, like USDC, are backed by actual physical assets. According to Binance, BUSD is backed by tangible assets managed by Paxos.
USDC is issued by crypto firm Circle, which told TechCrunch that much of the transition has “already passed” due to market activity and that they think the move raises “potential questions about market behavior.” Gizmodo didn’t immediately hear from Binance when asked if they had an answer as to whether they were trying to corner the stablecoin market.
White House administrators have previously mentioned that stablecoin issuers should be treated more like banks, meaning they would need to disclose what assets their stablecoins are tied to. This would pose a major problem for companies like Binance, which could then be locked out of short-term proprietary trading. Circle, on the other hand, has previously said they are already pursuing full bank recognition and seemed to welcome the change.
It is interesting to note that this move also does not target the Tether stablecoin, which remains the most popular stablecoin out there. Just last July, the company announced that it had completed integration with the Tezos network to enable Tether deposits and withdrawals. Tether has already proved unreliable, having previously been de-pegged from the US dollar. In this case at least, the company could make arguments beyond trying to corner the digital currency market.
In a statement sent to Cointelegraph, Binance said they have no immediate plans to convert Tether (USDT) into their own stablecoin, “but [that] may change.”
Binance itself has struggled to respond to some users’ requests for support. A previous report by Gizmodo showed how many user complaints to the Federal Trade Commission are aimed at Binance not offering phone tech support, leading users to become confused and disoriented when their accounts suddenly restrict withdrawals or otherwise scam them from nefarious accounts claiming to be Binance representatives. And in the meantime, executives at Binance like Zhao seem to feel it’s a necessary move given a crypto industry that’s still flagging. He even seems to think Winston Churchill – of all the historical nitwits he could fall back on – would agree with him.
And of course, all of this suggests that by storing their cryptos on an exchange, users are effectively relinquishing control of their assets. The recent crypto crash resulted in several exchanges essentially blocking their users from withdrawing their funds. Binance briefly restricted withdrawals on its own platform in June.
Update 09/06/22 at 11:50 am: Updated to include a statement on whether Binance would similarly restrict Tether and another statement from CEO Changpeng Zhao.