Since the fall of the Terra ecosystem and the UST, other stablecoins are particularly watched. Analysts recently revealed that Binance’s BUSD has not always been backed by an equivalent amount of US dollars. A fact that the cryptocurrency exchange platform admits, claiming that the problem has since been resolved. Update on the subject.
Binance’s BUSD Hasn’t Always Been Backed by an Equivalent Number of Dollars
They are two analysts from the firm ChainArgos, Patrick Tan and Jonathan Reiter, who noticed this discrepancy. In a long publication, they explain that the BUSD stablecoin of the Binance platform was launched in collaboration with Paxos, on the Ethereum blockchain. But the platform then launched its stablecoin on the Binance Chain, its own blockchain, as well as the Binance Smart Chain.
The difference between the BUSD present on Ethereum and those present on the Binance blockchains was not particularly highlighted by Binance :
“When talking about BUSD, most users assumed that Binance was talking about the one issued by Paxos on Ethereum, but the reality is that the BUSD existed on several blockchainsincluding Binance Chain, Binance Smart Chain, Avalanche, as well as Polygon. »
To make BUSD compatible with Binance Smart Chain (BSC), Binance used a “quasi-bridge”, a process she dubbed “Binance-peg.” In a nutshell: BUSD on the Binance Smart Chain were themselves anchored to the BUSD present on Ethereum. Each time a user therefore buys a BUSD on another blockchain, Binance buys BUSD from Paxos, and produces (mint) the equivalent number of tokens to distribute them. The reverse process is done for sales.
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A “double peg” which allowed a shift
According to the two analysts, it was this system that caused the emergence of a problem:
“Extensive research […] reveal that Ethereum wallets for BUSD that are “Binance-peg” had regularly less BUSD than the one circulating on the Binance Smart Chain.»
What this means is that Binance would have “created BUSD from nothingfor use on the Binance Smart Chain“. The lag was particularly strong in two periods: in March 2021 and in May 2021. It thus exceeded 1 billion dollars, which means that 1 billion BUSD was not guaranteed at these times. The report notes that – coincidence or not – this corresponds to times when another Binance native cryptocurrency, BNB, saw its price explode.
“It has long been suspected that Tether uses USDT to manipulate the price of Bitcoin. Would Binance have done the same with BNB?»
This is of course only an assumption on the part of analysts, not verifiable unlike the way the BUSD is backed.
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Binance admits the facts
Contacted by Bloomberg, the Binance teams admitted this discrepancy, which they called “operational delays». They ensure that the problem has since been resolved:
“The warranty maintenance process [du BUSD] includes many teams, and it hasn’t always been perfect. […] Recently the process has been improved, with checks to ensure it is still backed by the 1:1 ratio.»
We notice Binance’s apparent phlegm, which bluntly admits that its BUSD-peg stablecoin has not always been backed by an equivalent number of BUSD, and therefore dollars. This “double peg” (to the BUSD of Ethereum, themselves backed by the dollar) is not widely known to the crypto community, and shows that Binance USD does not work as simply as one might think.
It also suggests that the interest of regulators in stablecoins, which has emerged since the fall of Terra’s UST, may not be undue. Will we then see a general clean-up of practices with regard to stablecoins ? This could be a consequence of the particularly turbulent year 2022 that the ecosystem has just experienced.
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Source: Bloomberg, Patrick Tan via Medium
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Journalist at Cryptoast, I fell into the pot of cryptocurrencies a few years ago. I am passionate about the innovative technologies that stem from the blockchain and I like to find the most crispy information to share with you.
Marine Debelloir
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