Liquidity on crypto exchange Binance evaporated on Wednesday morning as its stablecoin, BUSD, dropped to a low of $0.20 against the DAI stablecoin.
A single sell order of $647,000 triggered the steep tumble. However, BUSD instantly regained its peg against DAI, as arbitrage traders snapped up the discount and sold it for $1 on other exchanges.
BUSD hasn’t always been fully backed
Protos previously reported that, in the past, Binance has undercollateralized its stablecoin on its own blockchain. Investigative reporter Jonathan Reiter of Data Finnovation collaborated with Patrick Tan of Novum Alpha to initially publicize the shortfall.
Last week, Paxos announced that it will no longer issue new BUSD tokens in compliance with demands made by the New York Department of Financial Services (NYFDS). Paxos itself is also under investigation by NYFDS.
Growing regulatory scrutiny hasn’t just affected Binance’s stablecoin, either. The major crypto exchange recently admitted to commingling customer funds with token reserves, amid US authorities cracking down on Bitzlato and darknet market Hydra — both of which enjoyed deep ties with Binance.
Binance itself is expected to reach a settlement with the Department of Justice over a longstanding investigation into potential US money laundering.