Binance, the popular crypto exchange, has made a surprising decision to denominate its emergency fund, the Secure Asset Fund for Users (SAFU), entirely in Circle’s USD Coin (USDC). This move comes at a time when the Bitcoin market is booming, driven by the recent halving and high ETF volumes. Binance converted 1.36 million BNB, 16,277 BTC, and its holdings from USDT and TUSD to USDC, essentially pegging 100% of SAFU to the US dollar through a government-regulated stablecoin.
While denominating the fund in stablecoins reduces its vulnerability to market fluctuations, it also means missing out on potential gains and being exposed to US dollar inflation. Billionaire investor Tim Draper criticized Binance’s decision, calling it short-sighted and unwise to allocate the entire portfolio to a stablecoin pegged to the dollar.
However, some experts argue that the trade-off for security is worth it. Ruslan Lienkha, chief of markets at YouHodler, believes that while SAFU funds may lose value due to inflation, it can be seen as a payment for safety. He also suggests that Binance could benefit from the centralized setup of USDC, as it is less exposed to hacker attacks compared to decentralized Bitcoin.
It is unclear whether Binance made the decision to switch to USDC voluntarily or if external factors influenced it. Binance’s recent history with US regulatory authorities, including a settlement and monitoring agreement, may have played a role in adopting USDC for SAFU.
USDC was chosen because it is widely regarded as the most regulated and compliant stablecoin in the market. Compliance has become increasingly important in the crypto industry as it attracts institutional investors. Circle, the issuer of USDC, has also applied to become an authorized stablecoin issuer under the new European legal framework.
Binance’s move to adopt USDC aligns with the industry’s trend of exhibiting regulatory compliance to attract institutional investors. While it may come at the cost of potential gains, Binance seems to prioritize security and compliance in its decision-making process.