World's largest crypto exchange shakes up stablecoin race

Driving the news: Binance on Monday said it will automatically convert customers' dollar-pegged stablecoins like USDC, Paxos' paxdollar (USDP) and trueUSD (TUSD) into Binance USD (BUSD), effectively delisting competing coins on the exchange.

Big picture: In effect the fiat-backed stablecoin market is a three-horse race, with market share almost evenly split between Tether and now Binance/Circle, per data compiled by The Block.

• Binance's forced conversion of customer assets consolidates power in the ranks, with BUSD and USDC combined market capitalizations of $71.3 billion just exceeding USDT's $67.5 billion.

What's happening: Starting Sept. 29, existing USDC, USDP and TUSD balances in user accounts will be automatically be converted, associated trading pairs such as BTC/USDC, for example, will also cease to trade and any staking on those assets will also be discontinued.

• But deposits and withdrawals can still be made in those other stablecoins, which means Binance has effectively made those stablecoins interchangeable with one another.

What they're saying: "This conversion is already an accepted practice in the industry and has proven to be in the interest of users above all," Patrick Hillman, chief communication officer of Binance, said in an emailed statement to Axios.

• He added: "This move was discussed and agreed upon with Circle/USDC and other third parties before making this decision."
• Of note: Binance's stablecoin is technically issued by Paxos, a New York-state regulated firm that has a white-label stablecoin business.

Crystal's thought bubble: Remember Disney Dollars? Disney offered customers a 1:1 equivalent to U.S. dollars underwritten by Scrooge McDuck to spend on merch and food within its theme parks. There isn't anything truly nefarious about Binance wanting its customers to transact in BUSD in its own ecosystem in the same way.

• What's maybe iffy about Binance's move is that it forces customer choice — the equivalent of Disney exchanging customers' Legoland and Harry Potter dollars for Disney Dollars right at the gate.

Flashback: Binance at first merely encouraged switching between stablecoins, touting out "ultra-low costs" to do so for a few select fiat-backed ones using Binance Convert in early June.

The other (same) side: "While optimizing dollar liquidity on the world’s largest exchange may carry benefits, the paradigm does raise potential market conduct questions," Rachel Busch, a spokesperson for Circle, said in a statement in response to Axios' queries.

• Circle CEO Jeremy Allaire on Tuesday tweeted: "Given how limited BUSD usage is outside of Binance, this will likely benefit USDC usage as the preferred cross CEX and DEX stablecoin rail."
• Yes, but: Circle stands to see a loss in revenue as a big chunk of the USDC balances will be converted to BUSD. (USDC in circulation has already dropped about 5% in the last 30 days, while BUSD's has climbed by 11%, according to data compiled by CoinGecko.)

What others are saying: Evgeny Gaevoy, chief of leading market maker Wintermute, tweeted that the move is a net positive for liquidity, because trading wouldn't be split between a number of dollar-backed stablecoins, but also a net negative for Tether and Circle.

• "This is the first shot in the upcoming USDT/USDC/BUSD race to become the leading stablecoin over the next years. Tether and Circle will undoubtedly react," Gaevoy tells Axios.

The intrigue: "We potentially will see other exchanges switching/deciding on which stablecoin they will support — for most of them it’s a question of efficiency just like it is for Binance," he says.