Crypto exchange Binance has denominated its Secure Asset Fund for Users (SAFU) entirely in Circle’s USD Coin (USDC), converting 1.36 million BNB, 16,277 BTC, and holdings from USDT and TUSD to USDC. This move has raised questions about the impact on Binance and the future of SAFU. While denominating in stablecoins reduces volatility, it also means missing out on potential gains and exposes the fund to US dollar inflation. Billionaire investor Tim Draper believes allocating 100% of the fund to a stablecoin pegged to the dollar is unwise. Others argue that the trade-off for security is worth it.
Ruslan Lienkha, chief of markets at YouHodler, agrees with Draper but sees the loss in value as a payment for safety. He believes Binance benefits from the centralized setup of USDC, as it’s less exposed to hacker attacks and stolen USDC is easier to find and block than decentralized Bitcoin. Binance may have been pressured into the conversion, considering its recent history with US regulatory authorities. The exchange settled a lawsuit with the Commodity Futures Trading Commission (CFTC) and agreed to extensive monitoring by the US Department of Justice (DOJ) and Financial Crimes Enforcement Network (FinCEN).
The choice of USDC may be part of Binance’s compliance agreement. The stablecoin is seen as one of the most regulated and compliant in the market, giving regulators power to intervene if necessary. This move highlights the importance of compliance in the crypto market, as institutional investors are looking for secure and regulated markets. USDC, with its regulatory branding, has gained institutional adoption over Tether. Binance has previously adjusted the balance of SAFU funds based on regulatory actions, replacing Binance USD (BUSD) with True USD (TUSD).
Binance’s decision to denominate SAFU in USDC may be a response to regulatory pressure and a strategic move to attract institutional investors. While it sacrifices potential gains, it prioritizes security and compliance. Whether this decision proves beneficial for Binance in the long term remains to be seen.
With the recent regulatory pressures, Binance’s move to USDC is a smart way to stay in line with authorities. 👮♂️
Allocating 100% of the fund to a stablecoin is a terrible decision. Binance is limiting its potential and stifling innovation in the crypto space.