Stablecoin Markets Shift as Binance Begins USDC Conversions

Binance conversions of Circle's USDC, Paxos's Pax Dollar, and TrueUSD to the exchange’s own stablecoin, Binance USD, have begun. And the effects on the stablecoin market are already being felt.

Since Binance's announcement that it would discontinue support for competing stablecoins on its exchange, the world's largest by volume, USDC outflows from Binance—that is, the number of USDC stablecoins leaving the exchange—are up by 93%. Meanwhile, USDC's market cap has fallen by 5%. 

As of Wednesday afternoon, $26 billion worth of stablecoins were sitting on Binance’s exchange, according to blockchain analytics firm Nansen. Of that, $20 billion was in BUSD, with the rest in competing stablecoins: $683 million worth of USDC, $48 million USDP, and $283 million TUSD.

The only other sizable stablecoin balance on Binance was $5 billion worth of Tether (USDT), according to Nansen.

Since Monday, users have been able to start converting their soon-to-be-delisted stablecoins to BUSD at a 1:1 rate. But starting tomorrow, the exchange will automatically convert any remaining USDC, USDP, and TUSD balances to its own stablecoin, according to a blog post.

Although the Binance announcement named three of its competitors, much of the attention has fallen on USDC. It’s the second-largest stablecoin by market capitalization and has consistently outpaced BUSD. 

Neither Binance nor Circle, USDC’s issuer, responded to a request for comment from Decrypt. But there are still signs in exchange data that show how the conversions have already impacted the stablecoin landscape.

When Binance announced the move at the start of the month, it created a lot of agita. 

That’s because the crypto exchange is by far the largest by volume, having done $23 billion in transactions in the past day. When the announcement was made, Twitter user "BloodgoodBTC" likened it to a crypto monopoly, saying the exchange was “deleting competitors like Google did 10 years ago.”

Meanwhile, vocal Tether and Bitfinex critic "Bitfinexed" hypothesized that the conversions should show a fall in USDC issuance and a rise in BUSD issuances.

Since both stablecoins are meant to hold a 1:1 peg with the U.S. dollar, and both Paxos and Circle burn coins as they’re redeemed, their issuance can be approximated using their market capitalization.

Sure enough, USDC’s market cap has since fallen to $49 billion since Binance’s announcement earlier this month. Over the same period, BUSD’s market cap has risen 8% to $21 billion, according to CoinGecko.

Both Binance CEO Changpeng Zhao and Circle CEO Jeremy Allaire have been adamant in saying that the auto-conversions do not amount to a delisting of USDC. For his part, Zhao said on Twitter that users can still deposit and withdraw USDC from the exchange. ”Best price, lowest slippage for all users,” he said.

Separately, Allaire said in a Twitter thread the day after the announcement that the change “will likely lead to more USDC flowing to Binance.”

In it, he took a side swipe at competitor Tether, tweeting that “USDT is NOT cash equivalent—not even close.” He also argued that since BUSD usage outside of Binance is so limited, that it would make USDC the preferred stablecoin for moving funds across centralized and decentralized crypto exchanges. 

The past day of trading does show that BUSD mostly trades on Binance, according to CoinGecko data. The three most popular BUSD trading pairs were Bitcoin, Ethereum, and Tether on Binance’s own exchange and they accounted for 65% of all the stablecoin’s volume.

Meanwhile, centralized exchange MEXC Global’s BTC/USDC trading pair has been the stablecoin’s most popular market in the past day, accounting for $747 million, or 17%, of USDC’s volume. And the soon to be ceased BTC/USDC trading pair on Binance accounted for 4% of USDC’s volume, according to CoinGecko.

There have also been signs of the shift in exchange outflows, according to blockchain data firm IntoTheBlock.

After the Binance announcement, USDC outflows from Binance have risen.

USDC outflow volume from Binance is up 93%, from $158 million at the end of August to $307 million. And the count of outflow transactions has increased by 77%, from about 1,100 to about 1,800 transactions, according to IntoTheBlock. 

That brings the running total for September to $19 billion across 44,314 transactions, up from $18 billion in August.

Those outflows, said Lucas Outumuro, IntoTheBlock's Head of Research, could be users who don't want to have their USDC converted to BUSD.

"But as far as I know, Binance is not actually converting them so it's not like they are withdrawing clients' USDC and sending inflows of BUSD," he told Decrypt. "It is likely to increase BUSD's liquidity longer-term, leveraging Binance's position of strength. Short-term it might not make that big of a difference given that as I mentioned Binance is not actually converting the assets."

But to put the outflows in perspective, it’s a modest increase compared to the amount of USDC that was being moved off Binance in May and June.

IntoTheBlock data shows that those two months were the highest and second-highest months for USDC outflows from Binance since 2018, when the exchange added the stablecoin. 

Users took $50 billion worth of USDC off the exchange in May and $30 billion in June, while the collapse of TerraForm’s TerraUSD algorithmic stablecoin and LUNA governance token rattled the market.