While the cryptocurrency industry has been under the radar of regulators over the past few years, including major exchanges like Binance, the most targeted aspect is stablecoins. After the recent saga between Paxos, the issuer of securities from Binance branded BUSD stablecoin, and the Security Exchange Commission (SEC), the stablecoin market has been confused. Investors are looking for the safest stablecoin to store their funds.
according to Binance Chief Executive Officer (CEO) Changpeng Zhao, known as “CZ,” the cryptocurrency industry will soon evolve away from the era of dollar-backed stablecoins into stablecoins algorithmically backed by other assets.
Crypto Industry To Move To Other Word-Back Real Currencies?
After strict regulation of USD-backed stablecoins, the crypto industry is now looking for other alternatives. As Bitcoinist reported, the US Securities and Exchange Commission (SEC) has increased its actions against crypto companies, such as Paxos and crypto exchange Kraken.
CZ said in a Twitter Space Q&A on Tuesday:
The amount of pressure on stablecoins is quite significant. Many agencies apply pressure there. That will shrink the USD stablecoin market, so the industry explores these options.
Stablecoins are less stable digital assets backed by fiat currency. Investors use it to reduce volatility exposure. In recent years, stablecoins backed by the United States dollar have become the most popular. Dollar-backed stablecoins account for almost all stablecoin markets.
Although stablecoins backed by fiat currencies, such as the Euro, exist, the dollar-backed market is still the most dominant. Tether USDT, USD Coin, BUSD, and DAI account for more than 10% of the global cryptocurrency market capitalization.
However, as regulators begin to laser-focus on the regulation of dollar-backed stablecoins, CZ believes the industry could see the emergence of other assets and even algorithm-backed stablecoins. CZ noted“I will see more euro- or other, Japanese yen, Singapore dollar-based stablecoins.”
Algorithmic stablecoins is an asset that uses a combination of complex computations and trader incentives to maintain a one-to-one peg for assets such as the dollar. An example of this type stablecoins i.e. Terra’s UST, a digital asset that collapses in 2022, causing the acceleration of the crypto bear market.
The crash of UST Terra was triggered by a redemption cascade which led to a massive run on the bank’s assets. This aggressive redemption process ultimately led to the downfall of UST. The stablecoin algorithm fails to maintain a one-to-one balance in these assets. According to CZ:
The regulatory crackdown around stablecoins was likely triggered in part by the collapse of the algorithmic stablecoin Terra Luna in May.
SEC Orders Paxos To Stop Issuing BUSD
Earlier this week, the New York State Department of Financial Services ordered Paxos Trust Co stop issuing BUSD, the third largest stablecoin in the cryptocurrency market. According to a recent report, Paxos will end its connection with Binance and stop the distribution of BUSD on February 21.
Paxos will still be supporting BUSD for the next 12 months despite the breakup. According to CZ, Paxos just stopped issuing new tokens. “The fact that the wind-down is orderly is a good thing. People who hold stablecoins will never lose their value,” CZ said.
In particular, CZ has always highlighted Binance’s unique connection with stablecoin BUSD. The CEO stated that BUSD was not his idea or his team, but something created by Paxos. Speaking of Binance, the exchange’s native token, Binance Coin (BNB), has been struggling to maintain its footing amid these incidents.
At the time of writing, BNB is up 3.6% in the last 24 hours after falling 9% over the past seven days. The current market price is still above $250, and wants to break the $300 mark again.
Options images from Bloomberg, Charts from TradingView.