Binance freezes withdrawals of stablecoin USDC as investors pull $2B

May I suggest the below insights to your point of view, which will allow you to have a better understanding of what is happening underneath the hood ?

USDC is issued by circle.com and the underlying assets are held on US bank accounts.

BUSD, which is Binance's USD stablecoin, is actually issued by paxos.com (see https://paxos.com/busd/) and the underlying assets are held on US bank accounts .

Binance definitely has accounts at both Circle and Paxos, that allow them to mint and redeem USDC and BUSD, by depositing or (respectively) withdrawing USD to Circle's or Paxos' bank account.

In September, Binance announced that all USDC deposits made on Binance would be converted to BUSD at 1:1 (https://www.binance.com/en/support/announcement/binance-to-a...). The move was indeed an attempt to boost the adoption of BUSD, which is the third largest stablecoin with a market cap of $19B, behind USDC which is the second largest with a market cap of $43B (see https://coinmarketcap.com/view/stablecoin/).

From a practical point of view, what Binance did was redeeming the USDC (by sending them back to Circle and withdrawing USD to it's bank account) and then subsequently minting BUSD (by wiring the USD to Paxos' bank account and receiving the corresponding amount of BUSD).

Binance also allows to "seamlessly" withdraw BUSD as USDC from it's exchange to your wallet.

Now you are starting to understand what happened today.

Following negative rumours, people started to massively withdraw BUSD as USDC from Binance. Binance fullfilled to first part of those withdrawal requests from it's hot wallets containing USDC, but past a certain amount it had no USDC left and temporarily halted withdrawals of USDC. A caveat to that is that Binance only halted withdrawals of USDC on the Ethereum and Tron chains. Withdrawal of USDC to Polygon and Avalanche for example have been running smooth all day, probably because less people choose those options, so there were still funds available on Binance's hot wallets on these chains.

Once the hot wallets were depleted of USDC on Ethereum and Tron, Binance could only continue to honor the withdrawal requests by converting the BUSD it held to USDC. That conversion requires to redeem the BUSD at Paxos, receiving USD on it's bank account, sending the USD to Circle, and receiving the corresponding amount of USDC. These steps involve regular wires between banks, hence why they could not be executed before the US banks opened.

That being said, the situation is now resolved and Binance has now re-enabled withdrawals of USDC.

I am… fairly well versed in this area. This is a nonsense take because:

- USDC is on eth, BSC chain halts impact USDC is like saying apple halted because android updated. Did not see anything to indicate it was USDC on BSC, but if so that changes things. If they did USDC -> BUSD, still should have 0 impact on w/ds off-platform.

- managing liquidity reqs via silvergate or w/e the USDC w/d bank is called is managed just fine without USDC down time by plenty of other parties conducting USDC treasury operations.

At best, this indicates binance has really bad treasury management and is cause for concern. At worse, smoke -> fire. Anything to do with internal treasury ops (fair enough, do a pause) does not have cascading effects on user w/ds

If you want to use dollars in a smart contract or otherwise in the crypto "ecosystem" (holding them in a wallet), they are useful. If I were Goldman Sachs, I would have made the "GS Cryptodollar" by now, but we're stuck with weird and untrustworthy stablecoins like Tether and USDC.

By the way, the concept of a "stablecoin" (defined as a currency located in a separate financial system than its home) isn't new - you can buy eurodollar futures which are futures on dollars that are physically located in Europe. Ironically, you can also buy euroeuro futures contracts which are for euros located in the US: the euro- prefix on a currency just means "not delivered inside sovereign borders, although the European eurodollar is by far the most important of these.

> In the case of commodity futures, it allows commodities to be traded on an exchange where bags of onion seeds would otherwise be difficult to trade.

That is not essential to what futures do. The essence of a future, is that it is a trade that is agreed upon today, but which settles in the future. I sell my corn to you at a price we agree on today for delivery in 3 months. That allows producers and consumers of commodities to reduce risk, while speculators can increase their risk.

Also -- weird but interesting -- the https://en.wikipedia.org/wiki/Onion_Futures_Act bans trading futures contracts on onions (and motion picture box office receipts). Not sure if that would apply to onion seed.

1 or 0 is true of government currencies. The unknown is when. For the Bretton Woods USD 'when' was August 15 1971.

https://history.state.gov/milestones/1969-1976/nixon-shock