As the Securities and Exchange Commission recently said, it intends to take legal action against Paxos, the company that created the stablecoin BUSD, which is the native token of the Binance cryptocurrency exchange platform. According to reports, Paxos was told to stop creating new BUSDs, which caused the currency to run out of millions of them.
The blockchain network has formally confirmed that it will stop minting BUSD in response to the Wells notice from the aforementioned law enforcement agency. The aforementioned well’s notice was well-known to be a warning indication for possible SEC enforcement action. The native token of Binance, according to the notice, is an “unregistered security.”
Hours after this announcement made headlines, Nansen researcher Andrew Thurman observed that various Paxos deposit addresses saw a “huge uptick in deposits, implying more redemptions/burns to come,” with over $275 million in BUSD allegedly burned that day alone, according to his analysis. In which the researcher stated that he does not expect the figure to be in the billions by the end of the week.
Paxos-BUSD vs. SEC
According to Nansen, a blockchain intelligence firm, Binance was once again in trouble after experiencing over $800 million in net outflows in a 24-hour period. According to reports, the said circumstance can be attributed to investors deciding to reduce their respective holdings in the said crypto exchange platform after becoming alarmed by the current feud between Paxos-BUSD and the SEC.
According to the data, Binance received digital asset withdrawals totaling more than $2 billion in just 24 hours. The platform has only received about $2 billion in deposits in the same amount of time. According to reports, the withdrawal surge occurred after the New York Department of Financial Services ordered Paxos to halt the issuance of BUSD.
Challenges on the Binance Reserve
The reported activity on Binance earlier this week outperformed the exchange’s daily net outflows since November and outflows from December when investors were spooked by the exchange’s subpar report on its reserves. According to Nansen’s data, BUSD is Binance’s second-largest reserve asset behind Tether’s USDT; as a result, the regulator’s announcement had a significant negative impact on the platform.
The withdrawal increase that was observed earlier this week, according to Walter Teng, vice president of digital asset research at market research firm Fundstrat, is a test of the platform’s reserved assets. In he further explained that Binance would experience withdrawal pressure if it doesn’t keep customer deposits 1:1,” stated Teng. However, Changpeng “CZ” Zhao, the CEO of Binance, promised its investors in a tweet that customer assets remain secure.