Stablecoin Wars, Forced Binance Conversions, and the Irony of It All – Mish Talk

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Stable Wars

Stablecoins cannot pay interest or they would then be regulated as securities. And with rising interest rates, a lot of money is earning interest on stock exchanges.

A battle is underway for this money. The result is a stablecoin war as Binance moves its rivals.

Binance, the world’s largest crypto exchange, said it will automatically convert user deposits from several rival stablecoins into its own stablecoin, Binance USD, starting this month. Analysts say Binance’s move could intensify rivalries between the biggest stablecoin players, such as Tether and Circle, and generate additional revenue for Binance as its stablecoin’s market capitalization grows.

Circle Internet Financial Ltd., which issues the second-largest stablecoin, USD Coin, held $40.1 billion in short-term Treasury bills as of September 15, according to its website. The Boston-based company earned $28.5 million in interest income from USD Coin in 2021 and $100.4 million for the first six months of this year, according to a recent filing.

Circle estimated it could earn $438 million in total interest income this year and up to $2.2 billion in 2023, it said in a financial outlook presentation in February. USD Coin has a market cap of $50 billion.

Tether Holdings Ltd., the company behind the largest stablecoin with a market value of $68 billion, held $29 billion worth of US Treasuries at the end of June, according to its latest attestation. Tether also charges a 0.1% redemption fee for a minimum withdrawal of $100,000.

On Binance, many tokens and derivative contracts are still quoted and collateralized in tether. Shah wrote that Binance users might be more inclined to withdraw their Binance USD as USD Coin than tether “given the troublesome inability to convert BUSD to USDT without executing a trade.”

Tether said Binance’s move could “aim to eliminate the second-place USD Coin and replace it with Binance’s stablecoin BUSD.”

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