Binance’s BUSD Lost Peg Thrice by $1B: Analysts

The world’s largest crypto exchange, Binance, has witnessed and acknowledged that problems exist in its system. As a result, Binance has admitted that the supply of its Binance Smart Chain stablecoin, BUSD, reportedly got undercollateralized by at least $1 billion.

But market analysts say the event of undercollateralized BUSD occurred thrice at least in Binance. Reportedly in 2020 and 2021, the Binance-peg BUSD was undercollateralized, per Blockchain analytics firm ChainArgos’ findings.

A Binance spokesperson says,

The process of maintaining the peg involves many teams and has not always been flawless, which may have resulted in operational delays in the past.

But the spokesperson maintains that the problem in question is now fixed.

Recently, the process has been much improved with enhanced discrepancy checks to ensure it’s always 1-1 pegged

added the Binance spokesperson.

Binance maintains that user redemptions were not at all affected by the BUSD collateralization issue. On the Ethereum blockchain, BUSD is reportedly sufficiently collateralized by U.S. dollars, per a process managed by Paxos (New York). But on the Binance Smart Chain (or the BEP-20 BSC blockchain), BUSD is reportedly missing a similar regulation by an audited and independent entity.

Binance ensures its BUSD’s legitimacy via claiming it is duly and completely collateralized with BUSD regulated by Paxos. Note that BUSD on Binance’s own blockchain is called Binance-Peg BUSD. But analysts indicate the Binance-Peg BUSD was not pegged on multiple instances.

ChainArgos’ Jonathan Reiter and Patrick Tan compiled and analyzed the relevant data. Their findings indicate Binance’s Binance-Peg BUSD wallet on Ethereum had held a balance way lower than the amount of Binance-Peg BUSD on its Binance Smart Chain.

In a recent blog post, Binance clarified that a “timing mismatch” in backing the Binance-peg BUSD with BUSD occurred. Binance wrote,

From the data it is clear that the rebalancing did not always keep pace with the demand for Binance-Peg BUSD. Having identified this ourselves last year we now rebalance more frequently to ensure that Binance-Peg BUSD is transparently fully backed.

The Binance-Peg BUSD wallet on Ethereum contains the BUSD required for backing all Binance-Peg BUSD.