Binance failed to follow its procedures for BUSD reserves between 2020 and 2021 since it didn’t keep enough reserves to support its BUSD stablecoin, according to a report by Bloomberg.
The mismanagement led to Binance-peg BUSD being undercollateralized three times between 2020 and 2021, with collateral gaps exceeding $1 billion on each occasion, according to data shared by Jonathan Reiter, co-founder of blockchain analytics company ChainArgos.
Furthermore, Reiter analysis demonstrated that the amount of Binance-peg BUSD issued on Binance’s BNB Smart Chain network indicated that the exchange issued new Binance-peg BUSD tokens over the period without locking up the equivalent amount of Paxos-issued BUSD tokens in its Ethereum wallet as collateral.
Worth noting when users purchase Binance-Peg BUSD, Binance buys BUSD from Paxos and then mints the equivalent amount of Binance-Peg BUSD tokens on the blockchain they selected. Following that, users receive their Binance-Peg BUSD, and an equal amount of BUSD is locked on Ethereum.
Nevertheless, a Binance spokesperson has confirmed that, at present, the Binance-peg BUSD is fully backed, and there was no impact on Paxos’s BUSD. He also maintained that the earlier events were due to operational delays. The Spokesperson said:
“Recently, the process has been much improved with enhanced discrepancy checks to ensure it’s always 1-1 pegged.”
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