Binance USD (BUSD), the third-largest stablecoin by market capitalization, did a quick plunge to a low of 20 cents against the DAI stablecoin Wednesday morning, upon liquidity drying up on crypto exchange Binance.
BUSD’s short-lived dip was triggered by a single market sell order amounting to $647,000, sending BUSD’s value down to 20 cents on Binance’s platform. Data on CoinMarketCap and CoinGecko do not report such changes.
The stablecoin immediately regained its peg on Binance against the DAI stablecoin, as arbitrage traders can purchase the token for below $1 on Binance, and then sell for $1 on another exchange.
But what could have caused this plunge to happen?
For a sell order of $647,000 to trigger a massive plunge, it can mean that liquidity was drained from Binance’s orderbook shortly before the sale was made, or perhaps a pricing error that failed to account for resting buy orders.
Some also guess it can be an aftereffect of Binance’s BUSD spring cleaning.
Later today, #Binance will burn $2bn worth of idle BUSD on BNB Chain.
The same amount of BUSD on the Ethereum network, which was used as collateral, will then be released.
— Binance (@binance) February 22, 2023
At writing, there are more than $3.38 million worth of aggregated sell orders below the $1 peg to 20 cents – so if BUSD prices were to plunge again, it would take that same $3.38 million sell amount for it to happen again, according to the orderbook.
Meanwhile, Binance and BUSD are under heavy pressure from US regulators as the New York Department of Financial Services (NYDFS) ordered regulated exchange Paxos to stop issuing Binance’s BUSD stablecoin. As a result of stopping issuance, BUSD supply would trend towards zero over time.