Binance’s Stablecoin Was at Times Undercollateralized by Up to $1B

Binance’s stablecoin was reportedly undercollateralized at times during 2020 and 2021.

Bloomberg reported Tuesday (Jan. 10) that the Binance-Peg BUSD reserves were at three separate times missing collateral of as much as $1 billion.

The cryptocurrency exchange’s token is meant to have its value backed by reserves of another stablecoin, BUSD, that has the Binance brand but is issued and managed by Paxos Trust and is backed by a reserve of cash and U.S. Treasury bills, according to the report.

However, according to the report, there were times when new Binance-Peg BUSD tokens were minted without having locked up the equivalent amount of collateral in the form of BUSD, the report said.

In a Tuesday blog post written in response to recent news reports, Binance said it has always updated the assets periodically — not in real time — but now does so “much more frequently” to ensure Binance-Peg BUSD is backed by BUSD on a one-to-one basis.

Binance added in the post that redemptions for users were never impacted and BUSD was always backed by reserves of U.S. dollars and cash equivalents.

The occasional timing mismatches in the backing for Binance-Peg BUSD occurred for operational reasons, the blog post said.

“Having identified this ourselves last year, we now rebalance more frequently to ensure that Binance-Peg BUSD is transparently fully backed,” the blog post said. “This will be included in the Proof of Reserves system that we continue to develop.”

As PYMNTS has reported, a collateralized or reserve-backed stablecoin is backed one-to-one by a reserve of fiat currency and other highly liquid investments.

Stablecoins in general are one of the most important and controversial parts of the cryptocurrency industry, as these privately issued currencies could change the way people pay for goods and services in ways that have central bankers and regulators afraid that they will lose control of their economies.

The news about Binance-Peg BUSD comes at a time when, after the collapse of cryptocurrency exchange FTX, investors and industry observers want proof that Binance is different.

Binance has been facing increasing scrutiny over the opacity of its operations and the solvency of its crypto holdings and has encountered challenges in its efforts to restore public trust.