According to blockchain intelligence firm Nansen’s data, more than $831 million in funds have been withdrawn from the Binance exchange within 24 hours. Recently, the SEC labeled Binance USD as an unregistered security, thereby suing the company issuing them.
BUSD is a Binance-branded stablecoin issued by Paxos, but the US regulator has managed to find a legal breach concerning the stablecoin. According to their report, the stablecoin is an unregistered security and might threaten unsuspecting customers. After the SEC revealed their decision to go after Paxos, the firm announced Binance's withdrawal was suspended. They said that they would be stopping the minting of new BUSD tokens.
A Binance spokesperson said that despite the issues which the stablecoin is facing, it would still be managed by Paxos. He also mentioned that Binance would be doing everything possible to ensure customers' funds are not affected.
"BUSD is a stablecoin wholly owned and managed by Paxos. As a result, the BUSD market cap will only decrease over time. Paxos will continue to service the product, manage redemptions, and will follow up with additional information as required. Paxos also assured the funds are safe and fully covered by reserves in their banks."
"Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from further undue harm," the Binance representative added.
Investors Withdrawing their Funds From Binance
Blockchain intelligence firm Nansen reported that the amount investors are withdrawing from the Binance exchange is currently higher than the deposit. According to the data provided by Nansen, about $2.8 billion worth of digital assets have been withdrawn from the exchange, and only about $2 billion have been deposited back.
Binance last year has taken several decisions which made several investors start staying alert about the crypto exchange. Binance halts withdrawals of Bitcoin on the 1st of December, claiming that they were carrying out yearly maintenance of their wallets. A similar event happened in November last year when they suspended the withdrawal of USDC.
Since Binance hasn't halted their withdrawals until now, many investors are trying to move their funds to a safer wallet while waiting for the outcome of their legal battles. Since the collapse of FTX, many crypto investors are taking proactive steps to avoid similar loss of funds.
Binance Reserves Being Tested Again
Binance has been fighting a battle or the other over the past years. Last year, they were involved in a massive FUD that threatened their reserves and whole existence.
The new action which the SEC decided to take is severely affecting the reserves of the Binance exchange as Paxos has stopped the minting of new BUSD tokens. Since BUSD tokens make up a large chunk of Binance reserves, it has raised many concerns among investors, making them withdraw their funds and move them to other exchanges/wallets.
Walter Teng, vice president of digital asset research of market analysis firm Fundstrat, said that certain factors might determine whether Binance reserves are severely affected. He says, "Assuming Binance doesn't hold customer deposits 1:1, they might face withdrawal pressure. On-chain liquidity for BUSD has already dried up, making redemption of BUSD for U.S. dollars or an alternate stablecoin to then meet customer withdrawals as the only viable option."