Binance’s BUSD stablecoin is currently one among the most important within the crypto sector, but there have been concerns in regards to the stability of the asset, especially with the collapse of the Terra UST stablecoin. Most concerns were raised across the collateral used to back the coin and Binance itself has admitted to some flaws in the way in which that the peg was maintained.

Raising The Issues Around BUSD Peg

Questions across the pegging to the Binance BUSD first arose following the publication of an evaluation of the Binance Smart Chain. Within the section that touched on BUSD, Patrick Tan revealed that there have been times prior to now, when BUSD – specifically the BUSD on BSC, was not backed by an equivalent amount in dollars.

Now, for many who don’t know, the primary version of BUSD was created on the Ethereum blockchain along with Paxos. This version of the stablecoin is regulated and completely backed by a dollar equivalent. Nonetheless, Binance, which launched its own blockchain in 2020, began minting BUSD on BSC.

The best way it was arrange was that because the BUSD on Ethereum was backed by dollars, then BUSD on Ethereum can be used as collateral for the BUSD minted on BSC. This might mean that whatever amount of BUSD was minted on BSC, there can be an equivalent amount of the stablecoin held in an Ethereum wallet.

BUSD in Ethereum wallet falls below BUSD on BSC | Source: Medium

The issue arose when it was revealed that the Ethereum wallet that was presupposed to hold the equivalent BUSD minted on BSC actually held less BUSD than the stablecoins circulating on the Binance Chain, and it happened greater than once. 

This simply meant that BUSD on BSC was not accurately collateralized at some points. And what’s more, is that somebody was seemingly capable of mint more BUSD tokens without having the equivalent on the ETH blockchain as collateral.

BUSD market cap at $16.33 billion | Source: BUSD market cap on TradingView.com

Binance Faces The Music

In a report, Bloomberg revealed that a Binance spokesperson confirmed that there have been flaws in the way in which that the treasury for BUSD was managed. Apparently, the issue arose from this process involving many teams, in the long run, resulting in operational delays.

Nonetheless, the spokesperson added that the crypto exchange has since moved to rectify these inefficiencies, reiterating that it had no impact on users and their ability to redeem their tokens. “The user will get their Binance-Peg BUSD, and the identical value of BUSD is locked on Ethereum and backed by US dollars,” the spokesperson said in the e-mail to Bloomberg.

The fears around the soundness of BUSD usually are not unfounded provided that multiple stablecoins have completely collapsed prior to now yr. Currently, USDD, the decentralized stablecoin of the TRON network, is trading under $1 after slipping below the peg on December 11.