Paxos, the issuer of Binance’s stablecoin BUSD, has recently announced that it will stop minting the dollar-pegged asset from February 21.
The announcement follows a legal threat from the Securities and Exchange Commission (SEC), which accused the NYDFS-regulated company of selling unregistered securities.
Paxos has stated that BUSD is not a security, but the SEC staff disagrees. This move has led to panic, with redemptions of BUSD skyrocketing over the past few hours.
Industry analysts are labeling this as a clandestine attack on Binance, and the BUSD run has caused a 2.2% decline in supply in just a few hours.
There was $16.15 billion BUSD circulating before the announcement, which has now shrunk to $15.79 billion, meaning that around $360 million has been redeemed.
Outflows from Binance have also surged, with more than $830 million in outflows over the past 24 hours, marking the largest daily net outflows since November.
Binance reserves are getting tested since BUSD comprises the second-largest reserve asset after Tether (USDT). With around $13.4 billion BUSD in reserve, the stablecoin accounts for roughly 22% of its total treasury.
BUSD temporarily lost its peg slightly when redemption volume started increasing, but CEO Changpeng Zhao has assured investors that this is just temporary FUD.