Binance in panic: $3 billion leaving, is the end near for the crypto leader?

According to data from blockchain intelligence firm Nansen, reported by several news outlets, Binance, the world’s largest crypto-currency exchange, has processed more than US$820 million in net outflows in the past 24 hours.

Users reportedly withdrew some $2.8 billion in digital assets during that period, surpassing $2 billion in deposits, CoinDesk reports. Dune’s analytics data, meanwhile, shows that net outflows on Binance reached US$916 million on Feb. 13, the highest level since late November.

The wave of withdrawals was even larger than the one the stock market experienced in mid-December, when reserve audit results raised concerns among investors and amid rumors of a U.S. federal investigation against Binance, as this panel of data suggests.

BUSD faces regulatory pressure

The latest round of mass exits comes after Paxos announced the suspension of BUSD issuance in response to an order from the New York Department of Financial Services (NYDFS). New York regulators ordered the company to stop issuing the token on Monday after labeling it an unregistered security.

In addition, reports have suggested that the US Securities and Exchange Commission (SEC) is preparing to launch an enforcement action against Paxos in connection with the same project.

Launched by Paxos and Binance in 2019, BUSD is a stablecoin pegged to the U.S. dollar that ranks third among such assets in the world in terms of market capitalization, just behind USDT and USDC, respectively.

BUSD trading explodes, supply shrinks

The recent news seems to have raised fears among Binance customers, who rushed to withdraw their digital currencies from the platform. At the same time, the number of BUSD exchanges has also exploded in the last 24 hours. According to data from Peckshieldmore than 340 million US dollars of BUSD were burned in the last day.

#PeckShieldAlert ~342M $BUSD have been burned at Paxos Treasury within the last 24 hours, $BUSD MarketCap: $15.8Bhttps://t.co/BMeVokqVE6 pic.twitter.com/hJdnixxbtD

— PeckShieldAlert (@PeckShieldAlert) February 14, 2023

Paxos said Monday that its BUSD holdings are fully backed 1:1 by U.S. dollar reserves, and Binance also assured that the token is 100% backed and will continue to support the asset, for now. However, this has not stopped the exodus of the stablecoin, as it seems that many users have chosen to cash out their redemptions.

As a result, the token’s supply shrank considerably within hours. Prior to the announcement, there was approximately $16 billion US in BUSD in circulation, but that number had shrunk to $15.6 billion at the time of publication. That means just over US$400 million was redeemed, according to data from CoinMarketCap.

The BUSD redemptions, coupled with the massive withdrawals, represent another litmus test for Binance’s reserves, as CoinDesk noted, considering that the asset is the largest in the platform’s reserves after USDT, accounting for about 22% of its cash. BUSD also accounts for 35% of Binance’s total trading volume.

The exchange could face increased withdrawal pressure as its ability to meet demands for BUSD swaps is tested. In addition, the stablecoin momentarily lost parity with the dollar on Monday.

Binance CEO Changpeng “CZ” Zhao responded to fears expressed earlier in the week and assured users that the funds were safe. He also stressed in a tweet that “FUD is temporary” when the BUSD briefly lost parity (FUD stands for fear, uncertainty and doubt).

NBB price drops

Meanwhile, fears surrounding the BUSD drama also seem to be having a negative impact on Binance’s native crypto-currency, BNB, whose price has slipped amid the events.

As CoinMarketCap data shows, the token experienced a decline on Monday when’it sank to its daily low of $283, its lowest level since early January, after trading above $315.

BNB has since recovered and is currently trading at $293, although it has lost about 10% of its price in a week, as part of a broader downward trend in the cryptocurrency market.