• Binance’s exchange inflows and outflows appear to be suspicious as huge transfers of Bitcoin and BUSD were recorded just before the SEC crackdown.
• The SEC has cracked down on Paxos restricting it from minting new BUSD stablecoin, while Binance may still continue to do so.
• There have been speculations that Binance was aware of the issue with the BUSD prior to the SEC crackdown due to large Bitcoin transfers and token swaps.
The Issue with BUSD
Binance recently experienced a crackdown by the US Securities and Exchange Commission (SEC) on its partner Paxos, preventing them from issuing new tokens of its regulated stablecoin, BUSD. This is because despite being registered, the SEC viewed this as an unregistered security. In response, Binance added a feature where users could easily swap tokens between Ethereum and other chains such as Polygon, minting new tokens on these chains instead.
Suspicions about Binance
The speculation arose when Changpang Zhao (CZ), CEO of Binance, announced mass outflows of BTC from their exchange just prior to this announcement by the SEC. Alongside this was a sudden rise in USDT transfers amounting up to 200 million which raised suspicion within the crypto space. Adam Cochran believes that prior knowledge of this issue could have been in play here due to large Bitcoin transfers and token swaps observed by Skew data providers before it happened.
Shadow Banking Solution?
It appears that in order to target more adoption for its own Ethereum-based stablecoins, such as BNB Chain or Polygon-based stablecoins, using what appears to be a „shadow banking“ solution was initiated by Binance. This would explain why massive amounts of BTC were transferred out of their exchange platform just before the news broke out about Paxos‘ restriction for minting new tokens for its regulated entity -BUSD.
SEC’s Take On The Matter
The SEC has yet not released any official statement regarding this matter but has taken action against Paxos for issuing unregistered securities through its regulated entity -BUSD. However, since there seems no clear indication if they will take action against platforms like Polygon or other decentralized exchanges that might mint new tokens in place of the restricted ones issued by Paxos ,it remains unclear how they will proceed further with such cases in future .
Though nothing can be said on certainty until an official statement is released by any regulatory body concerning this matter ,it certainly raises some questions regarding how cryptocurrency exchanges should go about building shadow banking solutions with ease going forward . Such developments can make way for easier access to USD while avoiding strict regulations imposed upon them when dealing with regulated entities like PAXOS .