Financial authorities in the US have been quite busy over the last few days. On February 9, the Securities & Exchange Commission (SEC) ruled that Kraken, a leading crypto exchange, had failed to register its staking-as-a-service program. As a result, Kraken was forced to take down its staking platform and pay a $30 million settlement.
More recently, on February 13, the SEC also issued a Wells Notice to the Paxos Trust Company, alleging that its Binance USD Stablecoin (BUSD) was operating as an unregistered security. In addition, the New York Department of Financial Services (NYDFS) ordered Paxos to halt the issuance of BUSD, effective immediately.
Such updates are bound to send the market into a tizzy, with several coins and projects feeling the effects of the SEC’s crackdown on BUSD. Some experts are also predicting a paradigm shift in the stablecoin industry due to the recent regulatory pressures. Tag along as we quickly cover some of these market reactions and future predictions of the stablecoin industry.
Tether (USDT) gains $1 billion market share
One coin’s loss is another coin’s gain. This phrase perfectly describes the expansion of Tether’s market cap on the back of BUSD’s troubles. The market capitalisation of USDT jumped from $68.40 billion on February 13 to $69.52 billion at the time of writing, an increase of more than $1 billion in little over two days.
At the same time, BUSD’s market cap has been on a steady decline, dropping from $16.15 billion on February 13 to $15.34 billion at the time of writing. The second-largest stablecoin by market capitalisation, USDC, also saw a drop in supply following the BUSD-SEC drama. The market cap of USDC slipped from $41.57 billion on February 10 to $41.04 billion at the time of writing. Like BUSD, USDC also operates under the supervision of enforcement agencies in the US, which could explain its drop in market capitalisation.
Tether is the leading stablecoin in terms of market capitalisation, and the shutdown of BUSD could help further cement its position at the top of the leaderboard. According to data from DeFiLlama, USDT now accounts for a massive 51 percent of the stablecoin market share.
BNB drops
BUSD was created through a partnership between the Paxos Trust Company and Binance. Therefore, the SEC’s crackdown on BUSD also hurt the BNB token, the native cryptocurrency of Binance’s BNB chain.
The token fell from $319.82 to $283.7 on February 13 itself, translating to an 11.30 percent slide in less than 24 hours. However, BNB has staged somewhat of a comeback since then, trading at $296.74 at the time of writing.
The token’s recent gains can be attributed to the latest CPI data which indicates lowered inflation rates in the U.S. While the inflation rates haven’t slowed just as much as expected, they have pushed many coins in the top 100 list into the green over the last 24 hours.
Binance sees massive outflows
BUSD accounts for nearly 22 percent of Binance’s holdings, as per data from Nansen. Therefore, FUD around the Paxos-BUSD drama has weighed in on the exchange as well, with more than $800 million worth of outflows recorded on February 13. Supply continued to leave the platform the next day, with more than $500 million worth of outflows on February 14. At the time of writing, Binance was dealing with its 3rd consecutive day of outflows, with more than $300 million worth of tokens leaving the platform on February 15.
Experts shed light on the future of stablecoins
In light of the SEC crackdown on BUSD and the coin’s subsequent shutdown, Binance CEO, Changpeng Zhao, has offered some insights into the future of the stablecoin industry. According to CZ, the crypto industry may see a move to non-dollar stablecoins in the future. CZ predicts that stablecoins pegged to the euro, yen, or Singapore dollar could see a rise in popularity going forward.
“I think given the current pressure and current stances taken by the regulators on the U.S. dollar-based stablecoins, I think that as you said the industry will probably move away to non-U.S.-dollar- based stablecoins,” CZ said in a February 14 Twitter spaces session.
“We probably will see more euro-based or other Japanese yen, Singapore dollar-based stablecoins, so it’s actually prompted us to look for more options in different places,” he added. CZ also hinted at the possibility of gold-backed and algorithmic stablecoins gaining ground in the future.
On the other hand, Onyx, the blockchain unit of financial giant, JPMorgan, stated that, faced with added regulatory pressures, the industry could move away from stablecoins in the future. The firm pointed to an institution-backed cryptocurrency known as a deposit token as a possible replacement for stablecoins.
According to Onyx, deposit tokens will be cryptocurrencies that are fully integrated into the traditional banking system. They would represent commercial bank money in a digital form. As such, these tokens would have the upper hand over stablecoins as they already have regulations in place.
Although they are only a concept as of now, Onyx believes that deposit tokens could be the future of stablecoins, especially given the recent developments around BUSD.
Conclusion
The shutdown of the third-largest stablecoin has sent shockwaves throughout the crypto industry. And while the short-term effects of the BUSD-SEC drama are already playing out, it’s hard to tell how far the contagion effect could spread. All we can do for now is wait and watch.
