Binance Global, the world’s largest crypto exchange, has acknowledged flaws in its systems that under-collateralized its BNB Smart Chain-based BUSD stablecoin by up to US$1 billion on at least three occasions, according to a Wednesday report from Bloomberg.

See related article: Binance stablecoin conversion controversial, but what does it mean for users?

Fast facts

  • The token, otherwise known as Binance-pegged BUSD, is designed to maintain a stable value of US$1 via reserves of another version of BUSD running on the Ethereum blockchain.
  • The Ethereum-based BUSD is collateralized by U.S. dollars and is overseen by New York-based financial technology firm Paxos Trust Company, LLC. Binance claims this version is fully backed by fiat.
  • “The process of maintaining the backing involves many teams and has not always been flawless, which may have resulted in operational delays in the past,” a Binance spokesperson said, according to Bloomberg. “Recently, the process has been much improved with enhanced discrepancy checks to ensure it’s always backed 1 [to] 1.”
  • The spokesperson added that no customers were impacted despite these discrepancies, but did not confirm how long the Binance-pegged BUSD was uncollateralized for in total nor when the company first became aware of the issue.
  • Binance made a controversial decision in September to convert customers’ holdings of three stablecoins, USDC, Pax Dollar (USDP) and True USD (TUSD), into BUSD, in a move the company said would “enhance liquidity and capital efficiency for users.”
  • Stablecoins play a major part in the crypto industry by allowing investors to maintain a constant value within the often-volatile ecosystem. Four of the top 15 cryptocurrencies by market capitalization are stablecoins — including BUSD which currently has the seventh highest market cap in the industry with US$16.4 billion, according to CoinMarketCap.
  • Binance-pegged BUSD was designed to allow the stablecoin to operate on Binance’s own blockchain and accounts for US$5.4 billion of BUSD’s total market cap.

See related article: Binance move to remove USDC and others raise questions about market conduct

(Updated to clarify in headline stablecoin was BUSD-peg.)