Pros and cons: Will Binance’s new stablecoin move seriously hit USDC?

Since Binance announced that it would automatically convert USDC and other stablecoins held in user accounts into BUSD and stop almost all USDC-related functions, industry insiders have launched a lot of discussions on this. Some believe that this move is a good thing for USDC, while others believe that this move will be the beginning of the end of USDC. Wu Shuo compiled the pros and cons of industry celebrities and compiled them as follows:

Circle co-founder and CEO Jeremy Allaire said that Binance is not going to stop supporting USDC, and this move is likely to drive more USDC into Binance:

• In terms of exchanges unilaterally converting existing customer assets, this is probably not appropriate for US regulated markets, and certainly not something I would do.

• Binance is working to consolidate liquidity in a cash equivalent type USD stablecoin. This is good for liquidity and market depth. USDT is not a cash equivalent, not even close.

• Binance is not taking action against USDT now because it would be a big disruption considering the current USDT liquidity on Binance.

• By incorporating USD stablecoin liquidity, it will now be easier and more attractive to transfer USDC to and from Binance to core market trading.

• Given that BUSD has very limited usage outside of Binance, this could favor USDC becoming the preferred stablecoin across CEXs and DEXs. Unless Binance can convince all of their competitors to support BUSD. This is unlikely.

• I am very confident in the long game we have and are playing for USDC, and in Circle’s role as a neutral market infrastructure participant.

  
  

Wintermute founder and CEO wishful cynic believes that this move is a good thing for USDC:

• Removing most stablecoin trading pairs is a good thing. Liquidity doesn’t have to be split between multiple stablecoins, making the job of market makers easier and the market more liquid overall.

• This is positive for USDC (and TUSD and other stablecoins), you should still be able to deposit/withdraw USDC seamlessly on binance. Before this change, you needed to convert it to BUSD/USDT and then use it for margin trading. Now you can skip the conversion step on both sides, which is a better customer experience while maintaining the usefulness of USDC.

• One stablecoin that clearly doesn’t fall into this category is USDT. This won’t help cognitively (customers will always wonder what makes Tether so “special” that they need to go to the trouble of converting). In the long run, liquidity in non-USDT pairs will increase.

• Ultimately, unless Tether improves their operational efficiency (minting/burning is a T+1 process, not nearly instant like USDC/BUSD/TUSD) and minting/redemption costs, it will continue to lose ground. However, in terms of operational efficiency, it is not something Tether can control, and Silvergate and Signature are unlikely to serve Tether, after all, US regulators don't like Tether, and these two banks happen to be the places where the most US dollar fiat flows 24/7. As for cost, any market maker can mint and redeem BUSD/USDC in a timely manner, they don't need Binance to do this, and FTX has been providing this function for some time.

  
  

Well-known Bitcoin supporter Samson Mow believes that Binance’s move will be the beginning of the end of USDC (Tether CTO also retweeted this news):

• In order to compete with Tether's USDT, USDC and Circle have made many very high time preference strategic decisions to grow their assets under management (AUM). This is the standard Silicon Valley play: burn money to grow fast, and then figure out the business model later.

• One of the decisions was to mint and redeem USDC for free. This removes friction for users and is good for attracting more customers, but it is also a double-edged sword. Binance can use the same mechanism to kill off a major competitor in the stablecoin game. This is an attack.

• Because Binance can mint and redeem USDC for free, they can directly take the USDC reserve as their own. We will see a decline in USDC trading volume and AUM, while BUSD will gain in both.

• Furthermore, this is much more than just a merger of trading pairs. This is a complete purge of USDC from the Binance ecosystem. USDC is no longer used in their lending and payment products either. This is a huge blow. How can anyone say this is a good thing?

• Now, why can’t Binance do the same thing with Tether? It’s not because USDT is “not equivalent to cash.” This attack doesn’t work on Tether because they charge 10 basis points for both minting and redemption. They’ve been doing this since day one.

• This is a bold move by Binance. Perhaps we can see other exchanges take this approach and try it out themselves. Maybe Gemini? Automatically converting USDC to GUSD? Eventually everyone will need to charge for minting/redemption to avoid this kind of attack.

  
  

Well-known trader lowstrife also believes that this move is bad for USDC. He said that this is not just a matter of merging to deepen liquidity or promote BUSD. This is Binance's hostile takeover of competing stablecoins to obtain their deposit income:

• This automatic conversion is not unique in the industry at this point, real physical ACH dollars sent to other exchanges are also handled in a similar way (like FTX). What is unique here is that they are imposing this on competing stablecoins rather than the actual USD you are sending in.

• Binance’s purpose is to capture the yield on deposits. Once these assets are managed by BUSD, it means Binance is able to capture the yield on these cash deposits. They buy up all the treasuries and start collecting sweet yields. Binance gets to keep these earnings, not USDC.

• Circle was profiting while USDC was held on Binance. Now, Binance is converting these assets to their own bank (BUSD) to capture this revenue. This is an attack on Circle and all stablecoins for leveraging the platform monopoly. This is the real purpose, not "merging order books".