Cryptocurrency exchange Binance announced on September 5 that it will convert customers’ holdings in three rival stablecoins USD Coin (USDC), Pax Dollar (USDP) and True USD (TUSD) into its own stablecoin (BUSD). The company said that the new changes will go into effect on September 29 as it wants to “enhance liquidity and capital-efficiency for users.”
The Binance platform will automatically convert all transactions into Binance’s stablecoin after that date. However, customers will still be able to withdraw money designated in USDC, USDP or TUSD.
What’s the point of a stablecoin?
Stablecoins as the name suggests primarily aim to provide stability. It usually pegs its value to other assets, usually fiat currencies. But can also include cryptocurrencies and other commodities. The most popular stablecoins are usually pegged to the United States dollar (USD) or the Euro (EUR).
Fiat currencies, issued by the government, automatically have a certainty in the market which unregulated cryptocurrencies lack. Stablecoins bridge this gap as they are backed by actual assets accepted worldwide, and offer a very tangible level of certainty in what is otherwise a very volatile market.
Stablecoins provide the same level of confidence and security that fiat currency provides to traders and investors in a non-crypto market. Most crypto enthusiasts tend to prefer stable coins; it is easier to move money in crypto exchanges using this instead of fiat currency, which is not accepted by all exchanges.
Furthermore, stablecoins instill greater confidence in the market resulting in fairer asset prices and a tighter bid and ask spread.
The Binance Stablecoin
“This will not affect users’ choice of withdrawal: Users will continue to be able to withdraw funds in USDC, USDP and TUSD at a 1:1 ratio to their BUSD-denominated account balance,” said Binance in a blog post.
The USDC, which had a market cap of $54 billion as of August 2022, is the second largest stablecoin. To acquire the USDC, users send money from their bank account that is then converted into the equivalent amount in USDC. The fiat currency sent by them is held in a reserve. With its announcement, Binance has pretty much eradicated USDC from its second spot and created roadblocks towards overtaking Tether (USDT) as the biggest one.
With this move, the company will prioritize its own stablecoin BUSD over others. They will also end trading pairs for the three stablecoins against BUSD and Tether (USDT) as well as major cryptocurrencies like Bitcoin and Ether. The stablecoin-to-stablecoin pairings will end on September 26 while the stablecoin-to-crypto pairings will be closed on September 29.
The company reiterated that, “All pending trade orders will be automatically removed after trading ceases in each respective trading pair. Users can then trade the assets in the respective BUSD trading pairs.” The crypto exchange also advised users to refrain from adding positions during the conversion period to avoid any potential losses. It clarified that the firm will not be liable for any losses occurred during this period due to conversion of funds.
Additional Changes at Binance
In a surprising move, the world’s largest cryptocurrency by exchange volume appointed a former Brazilian minister to an advisory role.
Binance has hired Henrique Meirelles as an Advisor, who served as Brazil’s economy minister from 2016 to 2018. He has also previously worked as the President of the Central Bank of Brazil. The move suggests that Binance is planning to comply with regulations around the world as crypto faces increased regulatory scrutiny.
Meanwhile, the company is also in talks with the Nigerian government to build a city that is crypto friendly. The city, the first of its kind in Africa, will provide a crypto-friendly administration and tax incentives.
