Binance Exchange Suffers Bank Run as Paxos-BUSD Drama Unfolds
The unfolding Paxos BUSD drama is causing ripple effects on the Binance exchange. Analysis of transactions executed on the exchange by Nansen indicates that Binance recorded $831 million in net outflows in 24 hours.
Regulators Crackdown Trigger Withdrawal Pressure
The massive withdrawal is the platform’s largest outflow ever witnessed since November in a day. The preliminary analysis by blockchain intelligence company Nansen illustrated that the largest global crypto exchange by transaction volume endured $831 million in net outflows.
The intelligence firm admitted that the increment witnessed in outbound transactions indicated investors’ response to the crackdown on the stablecoin issuer. It arises from the looming regulatory crackdown by SEC and New York regulators on the Paxos-issued Binance USD (BUSD) stablecoin.
Nansen’sNansen’s scrutiny of blockchain data discovered the withdrawals hit $2.8 billion against the $2 billion deposits in the past 24 hours.
Explaining the sudden spike in the outbound transactions, Nansen attributed the withdrawal appetite following news of the US Securities and Exchange Commission (SEC) serving Paxos with a Wells Notice. It involves a legal brief alerting Paxos of potential enforcement action for selling unregistered securities.
Binance Set to Bear Adverse Impact of Crackdown
The New York Department of Financial Services (NYDFS) echoed the SEC’sSEC’s stance by obliging Paxos to suspend the issuance of BUSD stablecoin.
The stablecoin under regulators’ radar ranks third largest with a $16 billion market capitalization. Its prohibition is set to adversely affect Binance exchange as it constitutes 35% of the platform’s trading volume.
The spike in transactions registered on Monday portrayed the busiest day of activity since November 2022. In particular, the net outflows surpassed December levels, as observed by crypto investment firm 21Shares when investors became spooked by the lackluster reporting of Binance reserves.
Testing Binance Reserves
The rush to convert the BUSD stablecoin into fiat currency is testing Binance reserves. Although issued and managed by Paxos Trust, enforcing action against BUSD would adversely hurt the Binance exchange considering that over $13.4 billion transact on the platform.
Nansen data shows BUSD is the lead asset in the Binance reserves, following Tether’sTether’s USDT. BUSD amount constitutes 22% of Binance’s total asset base, estimated at $60 billion.
Nansen’s subsequent review of Binance reserves shows that $3 billion was in BNB. As such, the blockchain intelligence firm estimated the native token of Binance-themed BNB Chain, translating to 5% of the assets base.
Independent scrutiny of the Binance reserves by blockchain-based analytics Arkham Intelligence approximated the BNB worth $6.9 billion.
The vice president of the Fundstrat market analysis firm Walter Teng observed that the enormous chunk of Binance-based assets on the exchange would test the platform with withdrawal pressure. He observed that Binance would suffer inevitable withdrawal pressure, particularly if it fails to hold reserves matching customer deposits.
Teng lamented that BUSD on-chain liquidity is drying up. Such occurrence makes BUSD redemption to US dollars and alternate stablecoin as the viable solution.
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