From TerraUSD to FTX, the cryptocurrency market hasn't had a fun time of late. Facing multiple controversies, in tandem with the ecosystem itself being largely associated with scams, the crypto world is now in the throes of heightened US government regulation. In feeling this added pressure, crypto prices are seeing some major drops in value.
Not a mere day prior, on Monday, Feb. 13, blockchain technology firm Paxos announced it would cease the minting of new BUSD stablecoins, citing a previous Wells notice issued from the SEC concerning registering the coin as a security. The New York State Department of Finance stood at the forefront of the crackdown, highlighting its order "as a result of several unresolved issues related to Paxos' oversight of its relationship with Binance."
The BUSD product, owned and managed by Paxos, according to Binance founder Changpeng Zhao, is a stablecoin built on the Ethereum blockchain. It's not to be confused with Binance's own coin of the same name, though they do share some relation. Stablecoins, as the name implies, are intended to be pegged to something tangible, making them far less risky (to some extent). Paxos' BUSD product is backed one-to-one with the US dollar, according to its website, like most stablecoins. As of Jan. 31, the firm reported about $16 billion in holdings.
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The problem, however, is in its cousin iteration under Binance. The BUSD that Binance self-issues is sold independently across blockchains, specifically on the part of the crypto exchange. This means that a Paxos BUSD can be purchased by Binance and sold on another blockchain while the Paxos BUSD remains frozen, thereby giving Binance some weighty power in its transferrable.
The aftershock of the news has sent BUSD withdrawals and transfers through the roof. Binance itself processed a whopping $1 billion in withdrawals as the outward fear of over-regulation intensified. Paxos has confirmed that redemptions will be made available for BUSD through February 2024, at the least, with users being able to either convert the stablecoin into Paxos' own iteration, the Pax Dollar (USDP), or redeem the funds in US dollars.
The terrifying display of destruction in the industry wrought by the Terra Luna crash has proven to be a lesson learned and not forgotten. Other major concerns, like the recent bankruptcy of FTX, have shown regulators just how scary the crypto climate can be when left unchecked, despite its decentralized nature. Not only are lawmakers taking notice, but the marketing machine is, as well, witnessed in the dramatic dropoff in crypto ads amid the Super Bowl this year.
The numbers truly don't lie. While 2022 proved to be an immense year, at least in the starting half, for the likes of NFTs and Web3 projects, not a year later and the tech industry has on the whole turned its gaze elsewhere, specifically toward artificial intelligence as the next major winner. Look no further than the incredible drop in crypto's market capitalization, which was as high as $2.3 trillion in January 2022, and now sits at a meager $870 million as of Jan. 9.
Regulation notwithstanding, crypto will endure. A Senate panel was held this morning, Tuesday, Feb. 14, concerning the very nature of digital assets. While certainly a step in the right direction, the reality is that the US still remains relatively behind in its cryptocurrency regulation, but of major note was a remark made by Lee Reiner, policy director of Duke Financial Economics Center, highlighting that "crypto is doing more harm than good to our society."
It'll be interesting to see if the crypto industry can bounce back in the face of this continued pressure or if major investors have left the space for good.
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