Who Benefits From Binance Converting USDC to Its Own Stablecoin?

The world’s largest crypto exchange is “consolidating” liquidity around its own stablecoin, BUSD – in a move that could benefit Circle and harm Tether.

AccessTimeIconSep 6, 2022 at 5:22 p.m. UTC
Updated May 11, 2023 at 4:37 p.m. UTC
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On Monday, Binance, the largest global crypto exchange by volume, announced it is killing access to three stablecoins that compete with its own dollar vehicle, Binance USD (BUSD). Binance said it’s making the move to improve liquidity and capital efficiency on the exchange.

Beginning Sept. 29, Binance will automatically convert users’ USD coin (USDC), Pax dollar (USDP) and trueUSD (TUSD) holdings into BUSD. Binance Pay, the exchange’s payments service, will also stop supporting those coins on Sept. 12.

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Binance is suspending spot, future and margin trading with the targeted coins, closing down all associated trading pairs. But users will apparently still be able to withdraw capital in USDC, USDP and TUSD – just not custody it directly on the exchange.

While those who say this is an overt power grab that raises novel antitrust questions have a point, it’s hard to argue that BUSD isn’t already popular. It’s a viable alternative to the other U.S. dollar stablecoins. I’m going to quickly try to see it from Binance’s point of view. Undoubtedly, liquidity conditions will improve on the exchange.

BUSD is the third-largest stablecoin by market capitalization, and has increasingly been growing its share of stablecoin trading volumes ever since Binance eliminated trading fees for bitcoin (BTC) on its platform this summer.

Circle’s USDC, the most important of the affected coins, is the second-largest stablecoin at a capitalization of about $52 billion. TUSD and USDP stand as the sixth- and seventh-largest stablecoins, capitalized at just over $1 billion and just under $1 billion, respectively.

As part of the move, Binance will also close access to its USDC-denominated saving accounts, decentralized finance (DeFi) staking services and loans. Counter-intuitively, Circle CEO Jeremy Allaire tweeted that the "converged dollar books on Binance ... is a good thing” for its stablecoin.

“Prediction: This move leads to a gradual net share shift from USDT to BUSD and USDC,” Allaire tweeted, linking to a thread by Evgeny Gaevoy, the chief executive of trading platform Wintermute. (USDT, of course, is tether, the biggest stablecoin by issuance. It's also conspicuously absent from Binance's plans.)

Gaevoy’s, and perhaps Binance’s, argument is that this cuts out steps for USDC users who want to trade on Binance. People can still issue USDC as before, deposit it on Binance, do what they want to do and withdraw in USDC. Notably, exchange FTX has had automatic conversion of USDC, which has benefited market makers, he added.

Meanwhile, there’s friction for USDT traders, who still have to manually convert their assets – a “a T+1 process” that may cause it to lose “ground,” Gaevoy said. Still, others think it's obvious that the world's largest exchange dampening the usability of USDC would clearly benefit tether – over the past year Circle has been eating into Tether's marketshare. But that's largely do to USDC's use across decentralized finance and Tether's continuing trust issues, not trading volumes on a centralized exchange.

All of this is fairly speculative and does raise questions about possible monopolistic behavior. Binance has cause to increase the utility of its BUSD stablecoin, issued by Paxos, but it would still cut into USDC trading volumes. If Binance’s self-reported transaction volume is correct, the exchange is leaps and bounds ahead of competitors.

“[W]hile optimizing dollar liquidity on the world’s largest exchange may carry benefits, the paradigm does raise potential market conduct questions,” Circle told multiple publications.

But USDC will still be accessible on other major exchanges, perhaps weakening the case for antitrust action. Further, because the exchange is still offering USDC withdrawals, it presumably will be holding a massive USDC bag.


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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.

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