By Michael Scott
The increasing regulatory scrutiny on Paxos Binance USD (BUSD) fuels the exodus to other stablecoins, including Tether USDT. The latest revelation that Paxos burned $1.8 billion BUSD translated to a $1.5 billion gain in USDT.
USDT Gains as Investors Flee BUSD
Explaining the crypto price data, CoinGecko illustrated that USDT market capitalization rose from $68.5 billion to $69.998 billion as rival BUSD battled regulatory scrutiny. The market capitalization gain is the largest since June 2022, when most traders confronted crypto market turmoil by betting on Tether’s demise.
Scrutiny on Paxos activity, as provided by crypto intelligence analyst Nansen reveals that over $1.8 billion of BUSD has burned since February 13. The blockchain data illustrates that the burn eroded the BUSD market capitalization from $16.1 billion to $14.3 billion.
Declining BUSD Market Capitalization
Nansen findings echo earlier revelation by CoinGecko data illustrating market capitalization is down by 11%. BUSD has fallen to $13.69 billion from $16.1 billion during this period, representing a 14% decline.
The US Securities and Exchange Commission (SEC) and New York Department of Financial Services (NYDFS) appetite to pursue Paxos for selling unregistered securities threaten to erode the third-ranked stablecoin. Speculators are questioning the future of the $136 billion stablecoin segment as the regulators’ action would shake up its constituents.
Enforcement Action by SEC and NYDFS Fueling the BUSD Minting
Paxos’ statement on Monday, February 13, regretted the regulators’ action as it confirmed terminating BUSD minting by February 21 as directed by NYDFS. The adverse impact from looming enforcement action is inevitable, particularly with the Gensler-led SEC devoted to weeding out unregistered crypto products.
The loss experienced by BUSD has spiraled over to the Paxos dollar (USDP). While the seventh-ranked stablecoin is not a target in the current regulator’s probing, it has suffered $100 million, representing over 11% decreased supply. A review of the Pax Dollar trading volume shows falling activity at $3.42 million representing a 37.3% decline.
Stablecoins Market Shakeup
The purge on stablecoins mirrors recent targets of Kraken staking services, with the San Francisco-based exchange, slapped with a $30 million fine by SEC. Paxos is unlikely to avoid a similar outcome considering that the SEC already conveyed a Wells notice.
Stablecoins have portrayed unique qualities since their price levels remain tied to external assets and fiat currency, primarily the US dollar. Paxos has decreased the BUSD supply through burning in response to faltering demand. Paxos considers burning BUSD necessary to prevent the price from de-pegging.
Meanwhile, Tether’s USDT will likely emerge as the clear winner during the stablecoin shakeup. Conor Ryder of Kaiko research firm observed little activity spike in Circle’s USDC and DAI issued by MakerDAO. A quick review of market activity shows that investors are swapping BUSD for USDT as others sell holdings for fiat money.