Investors Rush to Tether as Paxos’ BUSD Faces Regulatory Heat, Curve Liquidity Pools Show

If you have been following crypto commentators on Twitter since Sunday, you have probably read that U.S. financial regulators’ recent action against Paxos’ centralized, dollar-pegged stablecoin BUSD is set to drive investors toward decentralized, censorship-resistant alternatives.

And while that seems logical, the evidence so far points to the opposite. Investors appear to be moving out of BUSD and its peers, USDC and DAI, and into tether (USDT), the world’s largest centralized stablecoin, which has a market capitalization of $68.47 billion.

At press time, BUSD accounted for 81% of the total liquidity of $12.81 million in the busdv2 liquidity pool on the decentralized exchange Curve, while the pool’s other components – DAI, USDC and USDT – accounted for the rest.

BUSD’s dominance has increased from 69% since early Monday. In comparison, tether’s presence has declined to 3%, the lowest in the pool, according to data sourced from analytics tool Chaineye and Curve, indicating an increased preference for USDT over BUSD and other centralized stablecoins in the wake of the regulatory action.

“Investors are fleeing BUSD, even though Paxos gave all assurance that its issuance program is fully backed and will be wound down orderly,” Ilan Solot, co-head of digital assets at London-based Marex Solutions, told CoinDesk.

The move toward tether might be a surprise because the biggest centralized stablecoin is, perhaps, the most controversial, considering it is unregulated and the lingering lack of transparency about its reserves. On Friday, a New York Judge rejected an attempt by iFinex, cryptocurrency exchange Bitfinex and stablecoin issuer Tether, to block CoinDesk’s request for information about the financial reserves backing the USDT token.

The fact that tether successfully navigated the Terra-induced turmoil of May 2021 may have boosted investor confidence in the stablecoin. Either that, or it’s a case of dwindling alternatives.

“It’s not exactly that trust increased, but the perception that the range of available alternatives is narrowing,” Solot said. “For example, Binance will probably have to backtrack on it’s goal to establish BUSDC as the main base for trading in the exchange. Now it’s likely that USDT will remain the primary base.”

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