Expert flags risks to USDT as Binance moves to convert stablecoins

Automatic conversion of Binance USDC, USDP and TUSD on user balances into BUSD at 1:1 would reduce the market share USDT. The conclusion was reached by Evgeny Gaevoy, CEO and founder of market maker Wintermute.

On USDC news. Found most headlines very much misleading. My 5 cents:

— wishful cynic (@EvgenyGaevoy) September 5, 2022

According to the expert, the initiative would concentrate liquidity in a single stablecoin, rather than across multiple. This would ease the work of active market participants.

USDC, USDP and TUSD will benefit, as the bitcoin exchange will allow withdrawals in the same stablecoins as those used for deposits.

Previously it was necessary to convert USDC/USDP/TUSD into BUSD/USDT for margin trading. After the initiative is implemented, the need for this will disappear. The “auto-conversion” will improve client interactions and preserve (even enhance) the usefulness of USDC, Gaevoy said.

USDT will be sidelined. Many will surely wonder what makes it so “special.” In the long run, liquidity in non-USDT-denominated pairs will grow, the Wintermute CEO suggested.

Tether will continue to lose ground until it improves its issuance and redemption process. Currently this is settled the next day, unlike USDC/USDP/TUSD where the process is virtually instantaneous. 

Silvergate and Signature are unlikely to service the USDT issuer due to the US regulators’ negative stance. It is to these two institutions that the majority of fiat dollars flow 24/7, the expert noted.

Market makers do not require Binance to convert BUSD to USDC and back “in seconds.” This capability will be available to everyone. FTX has been conducting such operations “for ages,” the expert noted.

Circle CEO Jeremy Allaire, co‑issuer of USDC, acknowledged Gaevoy’s point. He confirmed the increased utility of the “stablecoin” thanks to Binance’s initiative.

Helpful perspective from @wintermute_t , which is spot on. Converged dollar books on Binance — now same as on FTX and Coinbase — is a good thing. USDC utility just increased. https://t.co/QWfMx7f1cZ

— Jeremy Allaire (@jerallaire) September 5, 2022

A Binance spokesperson told Cointelegraph that there are no plans for auto-converting USDT to BUSD, but did not rule out that such an option could appear in the future.

A platform employee said the stablecoin-related initiative would be permanent.

“This is not a delisting. You can still deposit and withdraw USDC. It’s simply a consolidation of all liquidity into one pair. Better price, lower slippage for users”, explained Binance CEO Changpeng Zhao.

Not delist. You can still deposit and withdraw USDC. Just merging all liquidity into one pair. Best price, lowest slippage for users.

— CZ 🔶 Binance (@cz_binance) September 5, 2022

Alex Svanevik, head of analytics platform Nansen, noted that the amount of USDC held by Binance had fallen by more than half, to under $1 billion.

Binance has less than $1B USDC now. pic.twitter.com/Sx4Wjr43V5

— Alex Svanevik 🐧 (@ASvanevik) September 6, 2022

Binance will begin automatically converting some stablecoins on user balances into BUSD from September 29.

In July, Arcane Research analysts predicted that by autumn USDC would surpass USDT in market capitalization.

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