A Binance Stablecoin Wasn't Always Fully Backed: Bloomberg
The company acknowledged to Bloomberg that the process of maintaining the peg "has not always been flawless," but said the problem has now been fixed.
Binance acknowledged that its Binance-peg BUSD stablecoin hasn't always been backed fully with reserves, but said it's now fixed the problem, according to a report from Bloomberg.
The token was at times undercollateralized in 2020 and 2021, Bloomberg reported, citing an analysis by Jonathan Reiter of blockchain analytics company ChainArgos.
"The process of maintaining the peg involves many teams and has not always been flawless, which may have resulted in operational delays in the past," a Binance spokesperson told Bloomberg. "Recently, the process has been much improved with enhanced discrepancy checks to ensure it's always 1-1 pegged."
The spokesperson noted that user redemptions were never impacted by the issue, but did not detail for how long Binance-peg BUSD was undercollaterized, nor when Binance discovered the issue and fixed it.
But in a blog post published after Bloomberg's article came out, Binance explained that there was a "timing mismatch" in backing Binance-peg BUSD with BUSD. "From the data it is clear that the rebalancing did not always keep pace with the demand for Binance-Peg BUSD," Binance wrote. "Having identified this ourselves last year we now rebalance more frequently to ensure that Binance-Peg BUSD is transparently fully backed."
Binance-peg BUSD stablecoin is tied to the value of Paxos-issued BUSD and was created to have a version of BUSD that could operate on blockchains other than Ethereum, according to the report. It's backed 1-to-1 by locked reserves of BUSD.
The resiliency of stablecoins and whether they're backed by a reliable pile of money is a contentious one in the cryptocurrency industry. Stablecoins are meant to closely track the value of something else, often the U.S. dollar. So if investors have put, say, $10 billion into a stablecoin, there should, in theory, be $10 billion sitting somewhere to back it up. The largest stablecoin, Tether's USDT, has been dogged for years by concern that it has not been fully backed. In 2021, Tether was forced to pay $18.5 million in penalties after New York state found that it had falsely claimed that its stablecoin was fully backed 1-to-1 by U.S. dollars.
UPDATE (Jan. 10, 18:26 UTC): Added statements from Binance's blog post.
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