Binance Receives Failure To Maintain “Flawless” Its Stablecoin’s Reserves In The Past

Key Points:

• Binance acknowledged systemic issues that resulted in at least $1 billion of its Binance Smart Chain BUSD supply being undercollateralized.
• The pegging method has subsequently been improved, according to a spokesperson for the exchange, who also noted that maintaining the peg includes several teams and has not always been perfect, which may have caused operational delays in the past.

According to Bloomberg, crypto exchange Binance acknowledged systemic issues that left its supply of Binance Smart Chain BUSD undercollateralized by at least one billion.

The Binance-pegged BUSD token is intended to have a fixed $1 value supported by reserves of BUSD, a different stablecoin with the exchange name but issued and managed by a different business, Paxos Trust. The amount of BUSD locked as collateral to maintain its own coin, referred to as the “peg” by Binance, had previously frayed but is now unbroken.

The process of maintaining the peg, according to a spokesman for Binance, includes numerous teams and hasn’t always been perfect, which could have caused operational delays in the past. However, the pegging process has since been improved, the spokesperson added.

The Binance-pegged BUSD is currently fully backed, and Paxos’s BUSD was unaffected, the representative continued. They claimed that despite discrepancies in the data, consumers’ redemptions were never disrupted, however, they did not say for how long Binance-peg BUSD remained undercollateralized or when the exchange became aware of and resolved the problem.

Data gathered by ChainArgos co-founder Jonathan Reiter and examined by Bloomberg News reveals that the Binance-peg BUSD was frequently undercollateralized between 2020 and 2021. Reiter’s estimates reveal that the difference between reserves and supplies exceeded $1 billion on three different occasions. For the data to be accessible to the general public, a blockchain node must be running.

Some stablecoins rely on algorithms to keep their price stable, while others use less conventional assets like bitcoins. The $60 billion destruction of the TerraUSD algorithmic stablecoin ecosystem in May raised questions about the efficiency of reserve management by stablecoin issuers.

Last year, regulators increased their inspection of stablecoin issuers’ backing for their tokens as part of broader calls for greater transparency in the cryptocurrency space in the wake of a $2 trillion decline in digital assets since their peak in 2021. Given that it is the largest cryptocurrency exchange in the world, it has been criticized for lacking clarity.

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