According to data from CoinGecko, Binance USD, the stablecoin issued by Paxos and branded under the world’s largest cryptocurrency exchange by trading volume, fell to a market capitalization of $9.5 billion on Friday. This is the first time since June 2021 that BUSD’s circulating supply has gone below $10 billion. The demand for BUSD has been declining rapidly since Paxos announced on February 13 that it would cease minting new BUSD tokens. This decision was made following orders from the New York Department of Financial Services (NYDFS). Furthermore, the US Securities and Exchange Commission (SEC) was reportedly preparing to sue Paxos for offering unregistered securities.
Investors have redeemed roughly $6.7 billion of BUSD from Paxos since February 13, according to blockchain data from crypto intelligence firm Nansen. As a result of declining demand, BUSD has been replaced by Dogecoin (DOGE) as the ninth-largest cryptocurrency by market capitalization, according to CoinMarketCap.
Coinbase, a US-based crypto exchange giant, announced this week that it will halt trading of BUSD on the platform beginning March 13, citing liquidity concerns as the reason for delisting the stablecoin. According to data from Kaiko, the daily trading volume for BUSD on Coinbase was only around $9 million in the last two months. Additionally, the market depth within 2% of the market price was just $600,000, making the stablecoin’s price vulnerable to fluctuations.
Market depth represents the open buy and sell orders for an asset within a specific price range, and the deeper the market, the more stable the price is. BUSD’s liquidity on Binance, its primary market, significantly declined last month, with market depth within 2% for BUSD-USDT and BUSD-DAI stablecoin pairs falling from $200 million in February to $123 million after the Paxos announcement.
Clara Medalie, director of research at crypto market research firm Kaiko, believes that Coinbase’s decision to delist BUSD was likely made as a precaution in anticipation of a future drop in liquidity or operational concerns around redemptions. Furthermore, she stated that “the overall liquidity is very thin,” which is not ideal for a stablecoin that should theoretically always trade 1:1 with the USD.
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