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Binance, the world’s largest cryptocurrency exchange by trading volume, will “destroy” $2 billion BUSD which idle on the BNB Smart Chain (BSC), per a tweet on Feb. 22.
Burning $2 Billion Of Idle BUSD On The BSC
BUSD is a stablecoin issued by Paxos on Ethereum under the Binance brand. The stablecoin is pegged to the USD and is backed by cash and cash reserves held in FDIC-insured banks in the United States and treasury bills.
Paxos is also regulated by the New York Department of Financial Services (NYDFS) and is now the third-largest stablecoin by circulating supply. As of Feb. 22, BUSD had a circulating collection of $12.4 billion and continues to play a critical role in Bitcoin and crypto trading, especially in centralized exchanges.
In crypto, stablecoins are channels through which users can convert fiat currencies into fungible tokens, enabling smooth trading of digital assets. Besides BUSD, there is USDT, which is the most liquid, and USDC.
Following this announcement, Binance plans to destroy $2 billion of Wrapped BUSD on the BSC. Paxos only issues BUSD on Ethereum, the first smart contracting platform. However, considering the vast Binance ecosystem, the token can be bridged to the BSC and other chains, including Tron and Avalanche, where it exists as wrapped BUSD.
It is this derived version of BUSD on the BSC that Binance will burn.
Later today, #Binance will burn $2bn worth of idle BUSD on BNB Chain.
The same amount of BUSD on the Ethereum network, which was used as collateral, will then be released.
— Binance (@binance) February 22, 2023
In a tweet, the exchange said all burnt-wrapped BUSD would be redeemed on Ethereum and released to holders.
The State Of BUSD And Previous Collateral Criticism
According to data, most BUSD trading volumes are derived from centralized exchanges. Cryptocurrency exchanges, including Binance and KuCoin, listing BUSD have generated over $8.7 billion in trading volumes in the last 24 hours. Trackers show that CEX trading volumes stood at $8.6 billion, several folds higher than DEX volumes at around $106 million.
Early this year, it was reported by Wrapped BUSD wasn’t always backed by reserves, sometimes between 2020 and 2021, forcing holders to scramble, exiting the token on the BSC. However, a Binance representative said the error had been noted and the problem fixed. They pinned the issue to a “timing mismatch.”
Binance undertook a project to centralize the collateral in a single, dedicated wallet; this was completed on Jan. 4 so that users can see the 1:1 backing of PBUSD. Minting of PBUSD now only takes place after the collateral is added to the dedicated wallet.
Trackers on Feb. 22 show that wrapped BUSD is pegged with the USD.
