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Coinbase to suspend BUSD trading

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(Kitco News) - The status of Binance’s BUSD stablecoin continues to deteriorate following the recent actions taken by regulators in the U.S. as Coinbase, the largest crypto exchange in North America, has announced that it will suspend trading for BUSD on March 13.

“We regularly monitor the assets on our exchange to ensure they meet our listing standards,” Coinbase said in a Twitter post on Monday. “Based on our most recent reviews, Coinbase will suspend trading for Binance USD (BUSD) on March 13, 2023, on or around 12pm ET. Trading will be suspended on (Simple and Advanced Trade), Coinbase Pro, Coinbase Exchange, and Coinbase Prime.”

The exchange added that the BUSD currently held in user accounts will remain accessible and users will be able to withdraw their funds at any time.

“Our determination to suspend trading for BUSD is based on our own internal monitoring and review processes," a Coinbase spokesperson told Kitco Crypto. "When reviewing BUSD, we determined that it no longer met our listing standards and will be suspended.”

The trouble for BUSD began in early February when the SEC issued a Wells notice to Paxos, the company responsible for issuing BUSD, stating that the regulator considered the stablecoin an unregistered security. Paxos has pushed back against those allegations and is currently in “constructive discussions” with the regulator, but has nonetheless halted the minting of any new BUSD and cut ties with Binance.

It was actually the September move by Binance to force its users to convert alternate stablecoins held on the exchange to BUSD that initiated these events, as USD Coin (USDC) issuer Circle informed the New York Department of Financial Services, which is responsible for regulating Paxos, that Binance was failing to maintain sufficient reserves to back the BUSD it had issued.

The scrutiny Binance is facing intensified on Monday thanks to a report from Forbes indicating that the exchange moved $1.8 billion of collateral meant to back its customers’ stablecoins to hedge funds in 2022.

According to the report, Binance transferred the collateral to hedge funds, including Alameda Research and Cumberland/DRW, without informing its customers. Blockchain data from Aug. 17 to early December shows that the shift in funds left more than $1 billion of Binance’s B-peg USDC tokens with no collateral despite assurances from the exchange that they would be fully backed by the token they were pegged to. B-peg assets are digital replicas of other assets hosted on BNB Chain, Binances’ proprietary blockchain network.

Patrick Hillman, chief strategy officer at Binance, told Forbes that the movement of money among wallets was common practice and represented no nefarious intentions. “There was no commingling,” he said, because “there’s wallets and then there is a ledger” which tracked all funds owed to users and funds or tokens going to wallets, which are simply “containers.”

But many have likened the asset shuffling to moves made by FTX prior to its bankruptcy when it shifted billions of dollars to Alameda Research, ultimately leading to the downfall of the exchange and a multi-billion dollar debt hole owed to its creditors.

A total of $1.1 billion was channeled to Cumberland/DRW, a Chicago-based high frequency trading firm, which may have assisted Binance in its efforts to convert this collateral into BUSD. Other recipients of the funds include Amber Group, Alameda Research, and Tron.

Bank regulator, not SEC, should oversee stablecoins - Circle CEO

For now, it appears that the temporary transfers led to no investor harm, but the situation reflects badly on Binance, which has been called out for numerous controversial practices recently as crypto exchanges have come under increased scrutiny following the collapse of FTX.

This includes reports that Binance maintained “secret access” to a bank account belonging to Binance.US – the American exchange that is supposed to be independent from the international entity – and transferred hundreds of millions of dollars to a trading firm managed by Binance CEO Changpeng Zhao (CZ).

Last week, the U.S. Securities and Exchange Commission (SEC) opposed Binance.US’s plan to take over failed crypto lender Voyager’s assets, stating in its filing that the Binance.US disclosure statement and plan “do not include necessary information regarding the security of assets” on their platform.

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