Binance's BUSD Stablecoin Faces Extinction Following Guilty Plea and Record-breaking Fine

After pleading guilty to the U.S. Department of Justice and accepting a record-breaking fine of $4.3 billion, Binance's Zhao Changpeng's stablecoin BUSD is also heading towards extinction.

The historical market capitalization trend of BUSD

Binance has announced on November 30th to remind users to withdraw their existing BUSD from the exchange or convert it to other assets by December 15th, 2023. Starting from December 31st, Binance will disable BUSD withdrawal, and the existing balance will be automatically converted to FDUSD (First Digital USD).

The fate of BUSD was already predetermined before Zhao Changpeng's guilty plea. On February 13th of this year, Paxos, the issuer of BUSD, received a Wells notice from the U.S. Securities and Exchange Commission (SEC), stating that BUSD is an unregistered security. On February 14th, the New York Department of Financial Services ordered Paxos to stop issuing BUSD.

In just four years of its history, BUSD has encapsulated the craziness, brutality, and tragedy of the crypto world. In September 2019, Binance partnered with Paxos to issue BUSD. Six months later, on March 10, 2020, BUSD reached a market cap of $100 million. In January 2021, BUSD's market cap surpassed $1 billion. On July 12, 2021, BUSD's market cap crossed $10 billion, making it the third-largest stablecoin globally. In August 2022, BUSD reached a market cap of over $19 billion, with $20 billion within reach.

Not satisfied with its rapid growth, Binance made another move. On September 5, 2022, Binance announced the automatic conversion of user-held or newly deposited USDC, USDP, and TUSD to BUSD. At that time, USDP and TUSD had relatively small scale, while USDC had a market cap of $51.8 billion, making it the second-largest stablecoin globally. Such aggressive behavior can be seen as nothing short of a blatant robbery. However, in the crypto world that follows the law of the jungle, where only the fittest survive, people seem to accept it.

BUSD's market cap quickly surpassed $20 billion, reaching its all-time high of $23.4 billion on November 13, 2022. As of February 13, 2023, BUSD still had a market cap of $16.16 billion and a trading volume of $6.985 billion, making it the third-largest stablecoin globally. After Paxos was forced to stop issuing BUSD, its market cap began to decline. By November 22, when Zhao Changpeng pleaded guilty and accepted a $4.3 billion fine from the U.S. Department of Justice, BUSD's market cap plummeted to just $1.7 billion.

On December 12, just three days before Binance stopped supporting BUSD, its market cap was only $1.4 billion. While it still ranked as the fifth-largest stablecoin globally, the difference between BUSD and the top four was significant. The top-ranked stablecoin is Tether's USDT, with a market cap of $90.6 billion. The second is USDC, with a market cap of $24 billion. The third is DAI, with a market cap of $5.3 billion. The fourth is TUSD (TrueUSD), with a market cap of $2.6 billion.

TUSD is one of the beneficiaries of BUSD's exit from the market. TrueUSD was launched in March 2018 by the San Francisco-based startup TrustToken, and later it was sold to the Asian investment group Techeryx. During the redemption crisis, TUSD was targeted for attacks. However, after BUSD was forced to stop issuing, TrueUSD became a supported asset by Binance.

The historical market capitalization trend of TUSD since its launch

In March 2023, Binance shifted its 'zero fees' promotion for Bitcoin trading from BUSD to TUSD, leading to a significant increase in TUSD's market share. The market cap of TUSD rose sharply, going from $2 billion in June to $3 billion within a month. However, Binance quickly shifted its focus to another stablecoin, FDUSD (First Digital USD). FDUSD was launched by First Digital Limited, based in Hong Kong, on June 1st this year. It was listed on Binance in July and received a series of support measures, including zero fees. In less than six months, FDUSD's market cap has already surpassed $1 billion, making it the sixth-largest stablecoin globally.

In the notice provided to users on November 30th, Binance explained that starting from 11:00 on December 31st, 2023, it will cease the withdrawal service for BUSD and automatically convert BUSD in non-specific region users' accounts to FDUSD at a 1:1 ratio.

The historical market capitalization trend of FDUSD since its launch

BUSD once played a significant role in supporting Binance exchange. According to Nansen data, on December 13, 2022, the daily trading volume of BUSD reached $16.4 billion, accounting for 45% of the total trading volume of $36.4 billion on Binance. With the cessation of BUSD issuance, its trading volume sharply declined, dropping to around $4 billion in June this year, and Binance's daily trading volume also decreased to around $20 billion.

This sluggish trend persisted throughout the third quarter, and it wasn't until the fourth quarter that Binance's trading volume gradually started to recover, finally surpassing $30 billion recently. On December 11th, the trading volume on Binance reached $30.7 billion, with BUSD accounting for only $1.3 billion, or 4%. Currently, it seems that the exit of BUSD does not pose a threat to Binance, as it remains the largest cryptocurrency exchange globally.

Binance's trading volume and composition in the past year (Purple =BUSD)

However, the fierce regulatory storm has dealt a heavy blow to Binance and allowed competitors to take advantage. According to CCData statistics, Binance's market share has decreased from 55% at the beginning of the year to 30% in December, but it remains the largest cryptocurrency exchange. The second-largest exchange, OKX, has seen its market share increase from 4% at the beginning of the year to 8% in December.

The only listed cryptocurrency exchange, Coinbase, saw its stock price rise for five consecutive days after Zhao Changpeng's guilty plea, reaching a peak of $147. On December 12th, Coinbase's stock price was $138, nearly tripled compared to the beginning of the year.

Cryptocurrency market observers, such as WTR founder Own Huang, believe that centralized exchanges like Coinbase will dominate the future of compliant cryptocurrency trading. With the new CEO Richard Teng, who has 13 years of experience at the Monetary Authority of Singapore, Binance is expected to embark on a path of compliance.