Binance’s big BUSD push heralds a stablecoin summer

The collapse of the algorithmic stablecoin UST brought many in the industry to their knees and dragged crypto prices down to levels not seen since 2020.

While it’s unclear if prices have bottomed out, we are truly in a crypto winter.

UST’s collapse, however, appeared to burnish the appeal of collateralized stablecoins – those backed by actual assets.

Image credit: Timmy Loen

In fact, the supply of USD Coin (USDC), measured in market value, peaked after the calamity. And although Tether (USDT) and Dai supplies fell in the same period, they have since stabilized.

Now, it seems that everyone wants a piece of the stablecoin action. Decentralized finance (DeFi) protocol Aave approved the launch of its own US-dollar stablecoin Gho. Curve Finance, also in the DeFi space, is set to follow suit.

More recently, Binance, the world’s largest crypto exchange, made waves by declaring it would only support its own stablecoin, BUSD, on its platform starting September 29.

It will do this by automatically converting other popular stablecoins that users deposit into BUSD. However, they can still deposit and withdraw in the stablecoin of their choice.

And we’re just scratching the surface of what’s on the market. How do we explain this sustained stablecoin fever? How do crypto players benefit, and what would their users stand to gain?

Driving crypto purists crazy

Let’s start with the obvious: Stablecoins are strong because the US dollar is strong, all thanks to the US Federal Reserve’s attempt to curb inflation by reducing the supply of the greenback.

Also, because of the bear market, more people are looking for stable yields rather than high returns in riskier protocols, says Sherry Jiang, CEO and co-founder of Bluejay Finance, a DeFi protocol that is set to launch stablecoins pegged to various currencies.

These factors explain why the market value of stablecoins has held up well compared even to top cryptocurrency Bitcoin, which has fallen below 30% of its peak.

Crypto purists that subscribe to decentralization will surely shake their heads at this, considering how top stablecoins USDT and USDC are managed by centralized entities.

This might change in the future, but that time is not now.

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