Regulatory Crackdowns Fuel Stablecoin War

Cryptocurrency regulatory policy continues to be pursued by the Securities Exchange Commission (SEC). By doing so, the regulator contributed to the intensification of the stablecoin war. 

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The SEC's crackdown on crypto-regulated blockchain platform Paxos caused capital to flee to rival stablecoins like Tether's USDT, which raised $1 billion just hours after Paxos stopped minting new BUSD tokens.

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Stablecoin War See New Casualties

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It has been reported by Trade Algo that trading firms are moving away from stablecoins USD Coin (USDCD), issued by Circle, and BUSD, issued by Paxos, in order to shift to Tether's USDT, which is more attractive because it is based outside the United States of America.

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Since the launch of USDT, Tether Holdings Ltd's stablecoin, in 2014, USDT has become one of the most widely accepted stablecoins in the world as traders have moved their investment portfolios to USDT over the last 24 hours.

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According to CoinMarketCap, the market cap of the stablecoin leader has risen to a new high of $69.5 billion this morning as the allegation that BUSD is an unregistered security with the SEC has led to a significant increase in its market cap.

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There is no doubt that the Hong Kong-based stablecoin giant presents an immediate solution for investors. It has been announced that SEC Chairman Gary Gensler is implementing new requirements for crypto exchanges in order to gain further regulatory approval from the Commission.

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With the recent capital raised in the last 24 hours, DeFi Llama has calculated that Tether's USDT dominance has increased again to 51.23% of the total market cap of the cryptocurrency industry, which is currently $136.9 billion.

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The New Normal For Stablecoins?

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Delphi Digital reported on Twitter that despite the crypto bear market in 2022, the total stablecoin market cap is only down -18%, while the total crypto market cap is down -55%.

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There has been an increase in decentralized stablecoin assets such as FLX and LQTY in the wake of the news that Paxos has stopped minting BUSD, according to the report, after the news broke that Paxos has stopped minting BUSD. Reflexer Finance (RAI) and Liquity Protocol (LUSD) are two companies that issue governance tokens which are called FLX and LQTY. 

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Binance has admitted to Delphi Digital that on three occasions between 2020 and 2021, Binance undercollateralized the BUSD peg by more than $1 billion, but has since corrected the issue and has now been fully collateralized. As a result of the news, 68% of the BUSD supply is on the Ethereum (ETH) chain and 32% has been bridged to the BNB chain. 

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BUSD liquidity has been steadily declining since the start of 2023, according to Delphi Digital. To leverage Curve's fluctuations, traders sell their BUSD tokens for other stablecoins on its Ethereum-based pool. Following the recent SEC news, Delphi Digital reports that the pool has 81% of reserves in BUSD. 

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Bitcoin's bullish reaction continued on February 14th after inflation data was released. In the past 24 hours, Bitcoin has gained 8.4% to $24,000, and is up 3.5% in the past 7 days.

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