The official announcement was made yesterday on Twitter: on 13 March 2023 Coinbase will suspend trading for the Binance USD (BUSD) stablecoin.
We regularly monitor the assets on our exchange to ensure they meet our listing standards. Based on our most recent reviews, Coinbase will suspend trading for Binance USD (BUSD) on March 13, 2023, on or around 12pm ET.
— Coinbase Assets (@CoinbaseAssets) February 27, 2023
Therefore, from that date, trading on all pairs involving the BUSD stablecoin on Coinbase will be suspended.
Users will still be able to withdraw their BUSD tokens, as withdrawals will not be suspended.
The stablecoin battle: Coinbase suspends BUSD
There has been a real struggle between the major stablecoins for some time now.
It all started in May 2022 with the implosion of the algorithmic stablecoin UST, which was the one within the Terra/Luna ecosystem.
UST was one of the top five existing stablecoins in the world, so its collapse had a major impact on the stablecoin market.
Moreover, its sudden collapse generated many fears that something similar might happen to some of the other major stablecoins.
While on the one hand, none of the others had any serious problems afterwards, on the other hand that collapse triggered many movements, mainly due to the shifting of funds between different stablecoins, and from stablecoins to dollars.
According to Statista data, in April 2022 the total market capitalization of the top ten stablecoins was about $163 billion, while in May it collapsed to $155 billion.
In June it also fell as low as $152 billion, thus highlighting that the cause was not just the demise of UST.
In the following months the decline continued, to the current 133 billion. In other words, stablecoins as a whole continued to lose market capitalization even after the implosion of UST, obviously in favor of the US dollar.
The stablecoin Binance USD (BUSD) delisted from Coinbase
Currently the one with the most problems in this respect is Binance USD, better known as BUSD.
Even though it has never lost its peg with the dollar, since every BUSD token is redeemable at par in USD, its market capitalization has fallen from its peak of $23.5 billion at the beginning of November to the current $10.6, i.e., more than halving in just over three months.
The thing is that BUSD’s issuer, Paxos, has been experiencing problems with US government authorities, and has therefore decided to stop issuing new tokens, merely allowing the redemption of existing ones.
Given that Coinbase is involved with the issuance of the world’s second largest stablecoin, USD Coin (USDC), it is hardly surprising that it is the first major exchange to have decided to delist BUSD.
Should Binance not find a solution by assigning someone else to issue and manage BUSD, it is more than fair to expect that Coinbase’s initiative will soon be followed by other exchanges as well.
Right now BUSD seems like a project with no future, although not entirely dead since all tokens can still be redeemed. Therefore, although there is nothing particularly worrisome about the delisting from Coinbase, it is entirely likely that other exchanges will also opt for the same solution.
There may be a problem with DeFi on BNB Chain, where BUSD is the reference stablecoin.
Theoretically, DeFi protocols on BSC could simply continue to use BUSD, since it is always redeemable anyway, but it is more likely that an alternative solution will be found as time goes on.
There could be two solutions.
The first, a trivial one, is for Binance to be able to revive the BUSD project by outsourcing the issuance and management of this stablecoin to someone else.
The second, somewhat more complex, is for some other stablecoin to take BUSD’s place as a reference within decentralized finance on BSC.
DeFi is by definition decentralized, but no stablecoin collateralized in fiat currency, such as BUSD, USDC, or USDT, can really be decentralized.
Indeed, the collateral in fiat can only be held by financial intermediaries in accordance with the law, and this does not facilitate the use of such tokens within decentralized protocols at all.
However, algorithmic stablecoins, which are collateralized in cryptocurrencies and managed through algorithms by which their value remains fairly stable, have even greater risks. UST, for example, was an algorithmic stablecoin collateralized in Luna, and as soon as the price of Luna began to collapse UST effectively imploded.
Among the major stablecoins still in existence there is just one algorithmic, DAI, collateralized predominantly in ETH. Despite this, the most widely used stablecoin in DeFi on Ethereum is USDC.
Thus to date it does not appear that algorithmic stablecoins are likely to dominate the decentralized finance exchange markets, which are still based on classic stablecoins collateralized in fiat and issued and managed by centralized entities.
USD Coin (USDC)
Coinbase’s move seems very much intended to help USD Coin (USDC) get stronger.
USD Coin is issued by Circle, in partnership with Coinbase, which is the main exchange used to bring USDC tokens to market.
Despite everything, even for USDC, 2022 was by no means a good year.
While it never lost its peg with the dollar, following the all-time high of $55.8 billion in capitalization touched in June last year after the implosion of UST, it began a slow decline.
It currently capitalizes just over $42.5 billion, after also falling below $41 billion a couple of weeks ago.
The problem is that, according to some, USDC would risk similar problems to those BUSD is having, particularly accusations of being a security.
However, it is worth pointing out that the current capitalization is in line with that of early 2022, so it simply lost the capitalization it had gained during the first half of last year.
Even sharper is the comparison with late 2020, that is, before the start of the last major bull run, when it capitalized less than $3 billion. It is therefore still a stablecoin that is definitely in very good health.
In the end, the real winner in this war, for now, seems to be Tether (USDT).
It is enough to think that its dominance in the stablecoin market has risen to 52%, so it alone capitalizes more than all the other stablecoins combined.
The curious thing is that after the collapse of UST it had been the first to go under. Although it never lost its peg with the dollar, except for very brief moments and only on a few exchanges, it had fallen from $83.2 billion in capitalization to below $66 billion.
However, the moment they started having problems, BUSD, and to some extent USDC, came back above $70 billion, and now it exceeds $71 billion.
Indeed, at this time the big fears of Tether that were widespread until a few months ago, probably incorrectly, are no longer circulating.
Tether’s life has been troubled, and in the past it has experienced some major problems, which however, has always managed to solve.
Following what happened in 2022, and what is happening in this beginning of 2023, USDT seems to have reasserted itself as the strongest and most widely used stablecoin, with an overall daily trading volume that continues to exceed even that of Bitcoin.