Last year, Circle, the firm responsible for the USDC stablecoin and a rival of Binance's BUSD, informed New York's financial regulatory authority about anomalies discovered by its team through blockchain data. According to confidential data, Binance had insufficient cryptocurrencies stored in its reserve to back up the tokens it had already issued via Paxos.
Following the recent news that New York's financial regulator has instructed Paxos to halt the issuance of Binance USD, due to various unresolved issues with Paxos, it has been speculated that Circle's complaint against Binance was prompted by the exchange's decision to stop supporting USDC and start automatically converting it into BUSD. As a result of this move, Circle's dominant position in the stablecoin market began to decline. However, Coinbase also attempted a similar strategy by offering a free exchange for retail customers to swap USDT for USDC, as it was one of the founding members of Circle, which issued the USDC stablecoin.
The filing of a complaint by Circle against BUSD can be seen as part of a “cold war for stablecoins” and reflects an underlying rivalry among market players. Circle's main concern was that Binance was creating its own versions of third-party coins, including Circle's USDC and Paxos's BUSD, and then making them usable on different blockchains. These versions, known as Binance-peg or B-Tokens, were allegedly inconsistent with the 1:1 ratio promised by the exchange. Additionally, Binance's B-Token version of Circle's USDC was affected, as reports indicated that the exchange had only $100 million in stored collateral to cover the massive $1.7 billion in Binance-peg USDC. Currently, Circle's USDC has around $40.8 billion in circulation, while BUSD has around $15.8 billion, according to crypto market research.
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