After Bloomberg reported on Tuesday that Binance’s Paxos-issued BUSD stablecoin wasn’t always properly backed and at points had a discrepancy of over $1 billion, Binance responded with a blog post explaining the matter. According to Binance, the balance updates used to be done less frequently creating backing discrepancies.
BUSD Reportedly Wasn’t Always Properly Balanced
This Tuesday, Bloomberg reported that Binance confirmed to the outlet that its Paxos Trust-issued BUSD tokens weren’t always backed with adequate collateral. Citing data compiled by Jonathan Reither, the BUSD was often undercollateralized and the discrepancies at a point went up to $1 billion.
Later on the same day, Binance published its own statement on the report. According to the world’s largest cryptocurrency exchange, the Paxos-issued BUSD wasn’t always adequately collateralized, but only due to less frequent balance updates conducted in the past. Similarly, Binance pins mismatch in backing Binance-Peg BUSD with BUSD to timing issued caused by “operational reasons”.
“For operational reasons, on occasion in the past, there was a timing mismatch in backing Binance-Peg BUSD with BUSD, which is what has been identified in recent articles. From the data it is clear that the rebalancing did not always keep pace with the demand for Binance-Peg BUSD. Having identified this ourselves last year we now rebalance more frequently to ensure that Binance-Peg BUSD is transparently fully backed. This will be included in the Proof of Reserves system that we continue to develop.”
Furthermore, Binance explains that the exchange itself identified the problem and implemented measures to resolve the issue—primarily by updating collateralization more frequently. For its part, the Blommber report identifies 2020 and 2021 as the mentioned “occasions in the past” when BUSD wasn’t properly backed.
FUD Surrounding Stablecoins
Generally, stablecoins are intended to be digital assets that maintain a stable value—with one token usually being worth one dollar. This peg is usually achieved either by backing the currency with traditional assets or using algorithms. Public confidence in stablecoins was greatly shaken in May 2022 when UST lost its peg causing the $60 billion LUNA collapse.
The crash of Terraform Labs’ currency caused increased regulatory and public wariness of stablecoins and led to a major investigation of the firm’s executives. The company’s CEO, Do Kwon, reportedly hiding in Serbia after Interpol issued a red notice for him at the request of the South Korean Government.
Perhaps the most noticeable effect of the LUNA collapse—on the regulatory side, at least—came in September 2022 when a House bill that would ban the issuing of algorithmic stablecoins in the US for a period of two years got proposed. Later in the year, however, some signs of regulatory thawing toward stablecoins became noticeable.
In late December, it was reported that Japan would lift the ban on the domestic distribution of foreign-issued stablecoins in 2023. Furthermore, Zhu Shu of Three Arrows Capital tweeted about his voluntary dismissal of a class action lawsuit pertaining to the LUNA collapse after it was revealed that Sam Bankman-Fried might have manipulated and destabilized Terraform’s tokens. SBF has been arrested and is facing multiple charges in the US for his management of the FTX Group.
This article originally appeared on The Tokenist
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