Binance is not only the largest cryptocurrency exchange in the world but it is also the name behind a renowned stablecoin Binance USD (BUSD). However, the exchange recently admitted that it faced problems in keeping BUSD pegged to its $1 value. As per the firm, the previous management flaws in the stablecoin led to an under-collateralization of about $1 billion.
Due to this, the stablecoin lost its $1 peg at least three times in the past. According to a spokesperson of Binance, the stablecoin’s pegging status was not always flawless. Hence, there were several operational delays. BUSD is completely collateralized by the US Dollar on the Ethereum Blockchain. Its collateralization status is reviewed by Paxos. However, the stablecoin on Binance Smart Chain is not regulated or audited in a similar manner.
While digging deep into the metrics, it was found that BUSD wallet on the Ethereum blockchain did not have the desired balance to back the BUSD in circulation on the Binance Smart Chain. Furthermore, the difference in balance was around $1 billion on three occasions between 2020 and 2021. The main reason behind this was that in some instances, Binance minted BUSD without issuing equal collateral for them.
Binance BUSD Might Suffer Due to Lack of Investor Confidence
Even though Binance’s spokesperson claimed that the pegging details have been corrected by the firm, there is an air of uncertainty among investors. Nonetheless, the exchange’s spokesperson claimed that the dilemma never really impacted users. The revelation is massive and it might have an impact on the performance of BUSD or BNB in the coming days.
There are several stablecoins in the market, as they are used by investors to counter market volatility. However, since the de-pegging of Terra’s UST, investors have remained cautious in the use of stablecoins. Previously, Binance ensured that it would maintain transparency with its users. However, the exchange has been severely criticized for this latest news.
The BNB token was aiming to test the $300 mark, as the crypto market looks to recover. But it looks highly unlikely for the coin to continue a strong positive momentum after the latest developments. Nonetheless, the BUSD is firmly placed at the $1 mark for now. Binance will now aim to restore investor confidence in the exchange, but it will need some time to control the damage.