Binance USD (BUSD), a once-dominant force among stablecoins, has been experiencing a steady decline in its market share over the past few months. As Tether’s USDT continues to assert its dominance, BUSD’s market capitalization has fallen by 16.14% in the last month alone, according to DeFiLlama data. This article explores the reasons behind BUSD’s waning market share and the changing dynamics in the stablecoin market.
The Rise and Fall of BUSD
When Binance introduced BUSD in 2019, the stablecoin quickly gained momentum, thanks to the backing of the world’s largest cryptocurrency exchange. Within just 261 days of its launch, BUSD achieved a remarkable milestone, amassing a market capitalization of $1 billion USD, faster than any other stablecoin at the time. Binance listed numerous trading pairs for BUSD, reaching over 300 at its peak.
The Changing Landscape
However, the past year has seen a shift in Binance’s approach towards BUSD. In February, the stablecoin issuer Paxos terminated its partnership with Binance and ceased minting BUSD at the request of the New York Department of Financial Services (NYDFS). Binance CEO Changpeng Zhao (CZ) claimed that the NYDFS had effectively capped the potential supply of BUSD at $23 billion, partly attributing this limitation to the rise of rival USDT.
BUSD Loses Support
In light of declining market share, Binance has reduced support for BUSD on its platform. The number of BUSD spot trading pairs has dwindled, leaving only 289 available options for BUSD users, while Binance continues to list 352 USDT trading pairs. Additionally, recent Binance Launchpool events have favored alternative stablecoins, and BUSD-staking has been conspicuously absent from the latest pools. Instead, the platform has promoted staking for FDUSD, a new stablecoin.
The Tether-Binance Rivalry
Despite the apparent shift in focus, Binance has not backed down from the competition with Tether. CZ criticized Tether for a lack of transparency during an AMA in May, referring to USDT as a “black box.” Conversely, Tether’s CTO Paolo Ardoino took jabs at FDUSD after it gained traction in August, following support from Binance.
Transparency Concerns with Tether
Tether has faced criticism for its collateralization strategy, which some argue lacks transparency. In response to these concerns, Tether has taken steps to improve transparency by disclosing that 85% of its reserves are held in cash and cash equivalents, primarily US Treasury Bills and other liquid dollar-based assets. However, detractors remain concerned about the remaining 15% of reserves, which are allocated to alternative investments.
Tether’s Bitcoin Holdings
Tether’s investment strategy includes diversifying its holdings beyond traditional assets. Notably, the company has invested in Bitcoin, allocating 15% of its profits to the cryptocurrency. This move has proven fruitful, with Tether’s Bitcoin holdings currently amounting to 55,000 BTC, worth approximately $1.6 billion USD. These holdings place Tether among the most significant BTC holders globally.
As Tether continues to expand its dominance in the stablecoin space, BUSD faces challenges in maintaining its market share. Binance’s strategic decisions, such as reducing BUSD support and promoting alternative stablecoins, suggest a shift in focus. Meanwhile, Tether has sought to address transparency concerns and diversified its holdings, including significant investments in Bitcoin. As the stablecoin market evolves, the competition between BUSD and Tether will likely shape the future of the digital asset landscape.