Stablecoin Wars, Forced Binance Conversions, and the Irony of it All

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by Mish Shedlock, Mish Talk:

World’s largest crypto exchange will automatically convert users’ deposits of rival stablecoins into its own Binance USD.

Stablecoin Wars

Stablecoins cannot pay interest or they would then be regulated as securities. And with rising interest rates, there’s a lot of money collecting interest at the exchanges.

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A battle is on for that money. The result is a stablecoin war as  Binance Makes Move on Rivals.

Binance, the world’s largest crypto exchange, said it would automatically convert users’ deposits of several rival stablecoins into its own stablecoin, Binance USD, starting this month. Analysts say Binance’s decision could escalate the rivalries among the largest stablecoin players, such as Tether and Circle, and generate additional revenue for Binance as the market cap of its stablecoin grows.

Circle Internet Financial Ltd., which issues the second-largest stablecoin, USD Coin, held $40.1 billion in short-term Treasurys as of Sept. 15, according to its website. The Boston-based company earned $28.5 million in interest income on USD Coin in 2021 and $100.4 million for the first six months of this year, according to a recent filing.

Circle estimated it could earn $438 million in total interest income this year and as much as $2.2 billion in 2023, it said in a financial outlook presentation in February. USD Coin has a market cap of $50 billion.

Tether Holdings Ltd., the company behind the largest stablecoin with a market value of $68 billion, held $29 billion in U.S. Treasury bills at the end of June, according to its latest attestation. Tether also charges a 0.1% redemption fee for a minimum withdrawal of $100,000.

On Binance, many tokens and derivative contracts are still quoted and collateralized in tether. Mr. Shah wrote that Binance users may be more likely to withdraw their Binance USD as USD Coin than tether “given the inconvenient inability to convert BUSD to USDT without executing a trade.”

Tether said Binance’s move could be “aimed at taking out USD Coin’s number two spot and replacing it with Binance’s own BUSD” stablecoin.

Tether Audit 

Tether has promised an audit for years and has not delivered. Instead it offers an “attestation.”

This is a “trust me, the money is there” statement, of which only $29 billion of which is actually in US Treasury Bills.

The rest can literally be anything (or nothing at all), but whatever it is (or isn’t), it’s not as liquid as short-term US treasuries.

Please note that a Bloomberg Investigation Tried to Find $69 Billion in Tethers and couldn’t.

On February 23, 2021, Coindesk reported NY AG’s $850M Probe of Bitfinex, Tether Ends in an $18.5M Settlement

The New York Attorney General’s office (NYAG) has settled with Bitfinex over a 22-month inquiry into whether the cryptocurrency exchange sought to cover up the loss of $850 million in customer and corporate funds held by a payment processor.

The NYAG’s office announced the settlement Tuesday, formally ending the inquiry that kicked off in April 2019. Under the terms of the settlement, Bitfinex and Tether will admit no wrongdoing but will pay $18.5 million and provide quarterly reports describing the composition of Tether’s reserves for the next two years. More significantly, these reports will match information Tether already provided the NYAG about its reserves. The NYAG will bring no charges as part of the settlement.

Settlement does not imply lack of guilt nor does it imply the money is really there.

Indeed, the conclusion was that it isn’t.

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