Analysis: What changes will the BNBChain stablecoin ecosystem undergo after BUSD exits the market?

Recently, Wu Shuo published a summary of the entire process of BUSD being subjected to regulatory raids. The U.S. Securities and Exchange Commission (SEC) sued Paxos for claiming BUSD was an unregistered security. Subsequently, the New York State Department of Financial Services (NYDFS) instructed Paxos to stop minting new BUSD. CZ also stated that "product adjustments will be made accordingly. For example, BUSD will no longer be used as the main currency pair for transactions."

It can be predicted that BUSD will gradually fade out of the historical stage of stablecoins. However, given that BUSD is the trump card stablecoin of BNBChain, what changes will occur in the stablecoin ecosystem of BNBChain after this flag falls?

The current status of BNBChain’s stablecoin ecosystem

According to defillama's statistics, the total market value of the stablecoin ecosystem on BNBChain has exceeded US$9 billion, of which BUSD accounts for 53% with a market value of approximately US$4.8 billion.

Next is USDT with a market value of approximately US$3.2 billion (35%), USDC with a market value of approximately US$780 million (8.67%), and some stablecoins with a market value of less than US$100 million such as USDD\Dai\HAY.

According to Paxos, BUSD can still be redeemed until at least February 2024. Although there is at least a one-year buffer period, facing the outflow of billions of dollars in stablecoins, the question before us is how this will stir up the stablecoin ecosystem of BNBChain?

• Is it to stimulate the development of decentralized stablecoins?

• Or will it strengthen the dominance of USDT/USDC on BNBChain?

Regarding the former, in response to the suggestion that Binance build its own decentralized stablecoin similar to DAI, CZ has responded that at this juncture, we would prefer others to do it to make it more decentralized. We can't do everything.

Looking back at the two players HAY & VAI in this track on BNBChain, their current stablecoin market value is only tens of millions. Even if we optimistically imagine that there are such projects that can take up the banner, it seems that there is an upper limit to the track itself. Even if the development is as good as DAI on Ethereum, its current stablecoin market value is only about 5 billion US dollars. When converted to BNBChain, it is still not comparable to the scale of centralized stablecoins such as BUSD.

So at present, it seems that it is most reasonable for USDT/USDC to inherit the stablecoin market share withdrawn by BUSD. But what we need to know here is that USDT\USDC officials have not issued native stablecoins on BNBChain. Strictly speaking, BNBChain does not have native centralized US dollar stablecoins, including BUSD, which is essentially a Binance-Peg Token. Binance officials hold native assets (i.e. BUSD on Ethereum), and then issue BEP20 Tokens on BNBChain at a 1:1 anchor.

Binance-Peg Token, BToken

Since most users only need to focus on the application experience, they do not have a deep understanding of the specific underlying attributes of various assets. In fact, in the early days of BNBChain (originally named BSC), Binance launched the Token Canal plan in order to attract external high-quality assets such as BTC\ETH and stablecoins. The essence is similar to wrapped assets, and Binance officials act as the processing center for the custody of native assets and the issuance and redemption of wrapped assets.

Later, as the introduction of more diverse assets and the expansion of scale, Binance officially referred to this type of token as Binance-Peg Token, BToken.

According to Binance's official proof of BToken's collateral reserves, we learned that there are currently 97 BTokens, including approximately 5.4 billion ERC20 BUSD reserves, corresponding to approximately 4.8 billion BEP20 BUSD and BUSD corresponding to other chains.

Previously, NYDFS emphasized that it authorized Paxos to issue BUSD on the Ethereum blockchain, but the department has not authorized Binance-Peg BUSD on any blockchain. It seems that the real motivation of NYDFS is actually Binance Pegged BUSD, rather than the concern about whether it has 100% reserve support. After all, Binance has open and transparent reserve proofs that can be verified, and Binance Pegged BUSD, a packaged asset, is strictly a product of Binance's on-chain behavior. So should NYDFS/SEC point the finger at Binance? USDT\USDC also has a corresponding Binance Pegged. Will Tether\Circle also have the same problem passively? Or is it just an excuse, and is it just a targeting in essence? Of course, even if it is a targeting, it may also be related to the initial support of BUSD by the currency security side, and the default automatic conversion of USDC, USDP, and TUSD to BUSD. After all, with the support of Binance, more scenarios of BUSD may be biased towards BNBChain, which will give people a misunderstanding that packaged assets such as Binance Pegged BUSD are native assets.

Now let's go back to the original question, "How will the withdrawal of BUSD affect the stablecoin ecosystem of BNBChain?" The answer seems to be relatively clear. It will give a certain boost to the decentralized stablecoin track, but the waves it may stir up are limited; it is likely that Binance Pegged USDT\USDC will share the demand for these stablecoins, and the gradual withdrawal of BUSD may also be negative for the BNBChain ecosystem. As for whether Binance Pegged USDT\USDC will be subject to the same regulatory restrictions on "issuance" authorization, such concerns can be put aside for the time being. Although Binance does not have a compliant custody license like BitGo, the custodian of WBTC, its asset custody reserves are open and transparent, and supervision should not be so ruthless.